Stocks surged last week on hopes the Strait of Hormuz would reopen. Then Iran shut it down again, and several prominent analysts say investors are making the same mistake they made at the start of the Ukraine war.
The whiplash was swift. After Tehran announced Friday that the strait was open to shipping, equities rallied hard. The S&P 500 gained 4.5% on the week. The Nasdaq Composite climbed 6.8% and posted its 13th consecutive winning session, a streak not seen since 1992, as CNBC reported. Optimism over an end to hostilities in the Gulf drove money back into risk assets at a pace that left some strategists uneasy.
The following day, Iran reversed course and announced the strait's closure. By Monday, global equity markets faltered as traffic through the waterway, a chokepoint for roughly 20% of the world's oil and liquefied natural gas supply, once again ground to a halt.
The two-week ceasefire agreed between the United States and Iran on April 7 is set to expire Tuesday. And several analysts now say the market's buy-the-dip reflex, conditioned by the tariff saga of the past year, is poorly suited to a shooting war in the Middle East.
Matt Gertken, chief geopolitical strategist at BCA Research, told CNBC's "Squawk Box Europe" on Monday that investors had grown accustomed to a pattern: President Trump raises the temperature, then lowers it, and markets recover. That pattern, Gertken argued, does not apply here.
"The market is believing this is like 'liberation day', that President Trump can raise the temperature but then lower the temperature at the perfect time, and that he's the maestro. But we could be in a different situation now, because Iran has been attacked, and they have a higher pain threshold."
Gertken's point is worth sitting with. Since Trump's tariff "liberation day" last year, investors have adapted a playbook: sell the shock, buy the reversal, and trust that the White House will find a deal before real economic damage sets in. That playbook rewarded traders handsomely through multiple rounds of trade brinkmanship.
But a military conflict with a sovereign nation that controls one side of the world's most important oil chokepoint is a different animal. Iran has been attacked. Its leadership faces different incentives than a trade negotiator looking for an off-ramp. And the White House has yet to secure guarantees on Iran's nuclear capabilities, described as one of its key war aims.
In other words, the conditions that made "buy the dip" a winning trade on tariffs may not exist here. The recent all-time highs in the S&P 500 and Nasdaq reflected a market betting heavily on easing tensions. If that bet is wrong, the correction could be severe.
Patrick O'Donnell, chief investment strategist at Orbis, offered a blunter assessment on CNBC's "Europe Early Edition" Monday. He said equity markets were viewing the situation through rose-colored glasses.
"It's pretty clear to us that equity markets are viewing things with a 'glass half full' view. What we're focused on is whether the Strait of Hormuz is actually going to reopen again."
O'Donnell added that the ramifications of a prolonged closure would have "quite a long-lasting effect" on the global economy and markets. That is not hyperbole. Twenty percent of the world's oil and LNG supply passes through the strait. If it stays shut, energy prices spike, supply chains buckle, and the inflationary pressure hits consumers and businesses worldwide, particularly in Europe and Asia, which depend on Gulf energy flows far more than the United States does.
The question O'Donnell raised, whether the strait will actually reopen, remains unanswered. Tehran's Friday announcement lasted barely a day before Iran reversed it. The ceasefire expires Tuesday. No one in the analyst community quoted by CNBC expressed confidence that a durable resolution is close.
Investors chasing momentum in individual names should take note. Even companies far removed from the Middle East can get caught in a broad selloff driven by energy disruption. We saw that dynamic play out recently when Tesla delivered one of its weakest quarters in years, a reminder that popular stocks with stretched valuations are especially vulnerable when sentiment turns.
Deutsche Bank's Jim Reid, head of macro research, urged caution in a note Monday and pointed to a historical parallel that should make any complacent investor uncomfortable, his word.
In the early weeks of the war in Ukraine in 2022, the S&P 500 rallied more than 10%. Investors bet that the conflict would be contained and that markets had priced in the worst. They were wrong. The headline U.S. index went on to fall around 25% from its January peak to its October trough. It finished the year down 19%, the worst annual showing since 2008.
Reid called that episode "a clear warning sign." He described the current mood among investors who had expected a quick resolution to the Iran conflict as "disappointed."
The parallel is instructive. In 2022, the initial rally reflected a belief that the worst-case scenario wouldn't materialize. It did. Energy prices surged, inflation spiked, central banks tightened aggressively, and equities spent the rest of the year giving back gains and then some. The investors who bought the early rally and held were punished for months.
Sharp downside moves can arrive without much warning, as shareholders in Carvana learned after a short-seller report sent shares plunging. The broader point holds: markets can stay irrational longer than bears expect, but they can also reprice risk faster than bulls imagine.
The April 7 ceasefire between the U.S. and Iran was a two-week agreement. It expires Tuesday. The terms beyond its duration and the identities of the parties are not detailed in current reporting. What is clear is that the ceasefire did not produce a reopening of the Strait of Hormuz that lasted more than a day, did not yield guarantees on Iran's nuclear program, and did not stabilize energy markets.
Gertken warned investors to take a longer view. On a 12-month time horizon, he said, investors "should be treating this seriously, they shouldn't be complacent about the crisis."
That advice cuts against the grain of a market that has spent the past week acting as though the conflict is already winding down. The 13-session Nasdaq winning streak, the 4.5% weekly gain in the S&P 500, these are numbers that reflect confidence, not caution. If the ceasefire lapses without renewal and the strait remains closed, those gains could evaporate quickly.
The broader lesson here is one that investors have been slow to learn across multiple cycles. Momentum feels like conviction until it isn't. Companies like Nike, whose stock cratered 14% after dismal quarterly results, illustrate how fast the market can punish misplaced optimism, even in blue-chip names.
The analysts quoted Monday are not fringe voices. BCA Research, Orbis, and Deutsche Bank are mainstream institutions with large client bases. When all three independently warn that the market is mispricing geopolitical risk, it is worth paying attention.
The core problem is structural. Investors have been trained by the tariff cycle to treat every escalation as a buying opportunity. That conditioning worked when the underlying dynamic was a negotiation between trading partners with mutual incentives to deal. It does not work when the underlying dynamic is a military conflict with a regime that, as Gertken noted, "has been attacked" and has "a higher pain threshold."
The Strait of Hormuz is not a tariff schedule. It cannot be adjusted with a phone call or a social media post. Its closure disrupts physical supply chains that take weeks or months to reroute. And the political incentives for Iran to keep it closed, leverage, deterrence, domestic credibility, may outweigh any pressure the ceasefire process can bring to bear in the short term.
Trump faces an election year, and his party has every reason to want a resolution. But the White House's key war aim, guarantees on Iran's nuclear capabilities, is the kind of demand that historically takes months or years of negotiation, not weeks. The gap between what markets are pricing and what diplomacy can deliver in the near term is wide.
Wall Street loves a narrative. Right now, the narrative is that the worst is over. Three serious research shops said Monday that the narrative is wrong. The ceasefire expires Tuesday. And the strait is closed.
When the facts on the ground and the prices on the screen tell two different stories, one of them is lying. History says it's usually the screen.