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Posted May 28, 2026 at 1:00 pm
Newsworthy mornings are tricky for me. I had started writing a morning piece about another day of broad market consolidation; then I stepped away from my desk for just a few moments to find that stocks had abruptly turned around. The reason was immediately obvious – a report from Axios that the US and Iran had reached a deal to open the Strait of Hormuz. If true, this would indeed be terrific news. Why then aren’t stocks and oil responding even more favorably?
Two theories come to mind. Traders have either (1) gotten skeptical after a near-constant barrage of positive stories that ultimately led to naught, or (2) after two months of digesting those stories, they are largely priced in. These ideas are not incompatible since they are relatively subtle variations on the same sort of theme.
But the potential outcomes can differ substantially.
If traders are skeptical of the ultimate efficacy of the peace talks, then that leaves room for further upside if and when they finally do lead to a lasting resumption of ship traffic through the Strait. WTI and Brent crude futures, mind you, are still higher on the day despite pulling back from their early highs, indicating that oil traders seem to be greeting the Axios report with some skepticism. I have frequently asserted that commodity traders are typically much better at interpreting geopolitical news when it affects the futures in which they specialize. Their lack of enthusiasm seems to bias the working hypothesis toward theory #1.
If, on the other hand, stocks are only rallying modestly because equity prices are already pricing in a positive outcome, that sets up a “sell the news” scenario. After nearly two months of essentially uninterrupted gains, that would be an unpleasant prospect. A complete reversal of the recent rally seems highly unlikely, since positive earnings and guidance from a wide range of companies – mainly, but not exclusively, in the tech sector – have also been a key factor behind major indices’ advances. But that hardly rules out a pullback that many could find surprising – particularly when we see VIX languishing below 16.
Hopefully, we’ll know soon enough which it is. Stay tuned!
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It could also be due to the “news” being from Axios. Rarely a credible rag. also VIX approaching 15 should be raising red flags IMO.
True. I am wondering!
The futures traders are not good at geopolitical fortune telling as you postulate. They have been wrong multiple times during this war. Their algorithms have pushed the panic sell button every time there is a Peace at Hand post by Trump only to shoot back up to even higher highs when the news inevitably proves proves false. Im not sure why it changed this time
Completely agree with the above posts here. The so-called oil traders seem more than happy to dump their oil on fake news from Axios. (Perhaps there are even black-budget-funded hedge funds in the Caymans leading the trade lower?) I suspect many of the true oil traders have been spooked out of the trade by now, but eventually, new buyers will begin to step in as it becomes apparent that oil is a physical commodity and that prices will have to rise as inventories fall.
I’m an oil trader for one, WTI spot in particular. I would agree that 1) news like this has been largely priced in since the leg down from the last high, 2) it will take time for a Straight of Hormuz return to normal even after a full re-opening, and most importantly 3) both Iran & the US lie – and they lie a lot, lol. So let’s wait & see. (Also what does a 60-day truce extension mean exactly? Resumption of war later? US & Iran seem to be worlds apart when it comes to what they want to agree on.)
Hi Goo goo. Gaga penguin