NEW YORK: Three months into the US-Israel war on Iran, it has become all but impossible to damp the bullish spirit driving global markets for risky assets.
Hope that a truce was imminent last Friday capped a seven-day rally that sent the S&P 500 to its ninth straight weekly advance, the longest since 2023.
Junk bonds rallied and treasuries gained, while Brent crude settled at US$92 after dropping more than 16% in May.
Whether the mood is sustained may depend on the fate of seemingly stalemated negotiations towards ending the war.
Exchanges of messages between Iran and the United States over the text of a potential pact are still ongoing, and the two sides are proposing changes, periodically, the semi-official Tasnim news agency said without citing anyone.
It added that no agreement had been reached and it was still possible that any deal could collapse.
“There are likely going to be more setbacks, but the market has already priced an agreement in Iran,” said Patrik Lang, chief investment strategist at Geneva-based Global Gate Asset Management.
“I wouldn’t expect big market moves, except maybe lower oil, once the deal is announced.”
Over the weekend, Israel expanded its ground assault in Lebanon as Hezbollah, Iran’s most powerful regional ally, stepped up attacks on Israel’s north.
According to the Israeli military, Hezbollah fired more than 300 projectiles at its soldiers in Lebanon and at northern Israel.
The escalation has shattered a truce declared after the Tehran-backed group attacked Israel in response to its war on Iran, which it launched with the United States on Feb 28.
Trading in US equity, treasuries and energy futures resumed in earnest in New York (6pm). Meanwhile, the US dollar was quoted little changed against major peers as currency markets reopened for the week.
“The market has shifted longer dollars, and finalising the US-Iran ceasefire ought to weigh on the greenback,” Barclays strategists, including Themistoklis Fiotakis, wrote in a note to clients.
Last Friday, US President Donald Trump posted on social media he was ready to make a “final determination” on a preliminary agreement to extend the ceasefire. Hours later, he left the Situation Room meeting without any decision being made, the New York Times reported.
Offsetting war worries has been unbounded enthusiasm for sectors touched by the artificial intelligence trade.
The Philadelphia Stock Exchange Semiconductor Index is on pace for its best quarter ever after soaring 69% in the past two months.
Chips are the best-performing sector in the S&P 500 this year by a wide margin.
Micron Technology Inc’s shares have more than tripled this year, and in Asia, SK Hynix Inc has soared 260%, and Samsung Electronics Co is up 165%.
If anything threatens the upward arc its the velocity of the advance itself, according to Laurent Lamagnere, deputy chief executive officer of Alphavalue in Paris.
“There’s a gradual realisation across the market that something’s got to give in the artificial intelligence (AI) economy: there’s no way that these massive investments will pay out for every actor,” Lamagnere said.
“A correction at one stage would make sense.”
Gains across risk assets owed as much to conviction over the economic and earnings picture as they do anxiety over being left behind.
Investors who have spent months doubting the rebound find themselves under-exposed as the S&P 500 extends its climb from the March lows to nearly 20%, corporate-bond spreads narrow towards multi- decade lows and bearish wagers are steadily squeezed. — Bloomberg
