Hope or head fake: Is the ceasefire rally built to last?

Are markets getting ahead of themselves on ceasefire optimism?

Market recap

• Equity markets rebounded this week on ceasefire plans in Iran.
• The S&P 500 rose 3.6%, led by consumer discretionary, banks and big tech, while energy lagged alongside a selloff in oil prices.
• The TSX added a more modest 1.8%, held back by declines in energy and telecom.

Iran

After weeks of escalating conflict in the Middle East, the U.S. and Iran agreed to a conditional two-week ceasefire last Tuesday¹. The announcement triggered a broad-based rally across equities, with markets appearing to interpret it as an early signal that both sides may be moving closer to a more durable resolution. However, a ceasefire, particularly one that is conditional, is just the beginning, and it remains too early to assess how this conflict will evolve. The shift in sentiment has been most clearly reflected in the energy sector. Oil prices have declined sharply, in the range of 15% to 20%, and while a ceasefire has reduced immediate risks, supply concerns and broader energy market disruptions are unlikely to disappear overnight. That said, the easing of near-term risk will likely lead to some second-order effects. Stabilization in energy prices, even if temporary, can help ease pressure on companies that have been grappling with cost uncertainty. It may also provide a modest lift to consumer sentiment, which remains sensitive to volatility in fuel prices and broader inflation expectations. The key point is that this is an early step, not an endpoint. The next phase will be critical in determining whether this initial agreement evolves into something more substantive. For now, markets are pricing in hope, but whether that optimism proves durable will depend on what follows in the weeks ahead. We still believe caution is warranted until we have more clarity and see more fluid passage within the strait.

Bottom line: Markets have rallied on U.S.-Iran ceasefire hopes, but lingering oil risks and geopolitical uncertainty suggest optimism may be premature and dependent on next steps.

Oil prices

While benchmark prices have pulled back, in some regions, including the North Sea, physical crude continues to trade above Brent.² In our view, this does not invalidate the broader case for higher oil prices but rather reflects a market transitioning away from prior oversupply conditions. Even in a scenario where the Strait of Hormuz reopens fully and markets return to business as usual, the underlying supply-side dynamics have shifted. As a result, we would expect oil to retain a structural premium, with prices gradually settling into a higher trading range, potentially around $70–$80. At the same time, near-term frictions should not be overlooked. There is still a backlog of supply yet to reach the market, and logistical constraints may take time to resolve. Additionally, factors such as insurance costs, transit risks, and potential policy or pricing decisions from producers, including Iran, may continue to influence the pace of supply normalization. From a regional perspective, the easing of disruption has already produced differentiated market responses. Emerging markets more directly exposed to Middle Eastern energy flows, particularly in Asia, have seen stronger rebounds. Markets such as South Korea have significantly outperformed, while the United States, with its higher degree of energy independence, has posted more modest gains. Europe sits in between, benefiting from improved sentiment but remaining sensitive to external supply dynamics.

Bottom line: While a backlog of supply continues to weigh on logistics, the oil price backdrop is shifting higher as tighter supply conditions re-anchor the equilibrium range.

Investors

From a positioning perspective, there are a few ways we would think about navigating the current environment of elevated uncertainty and sharp market moves. First, within Energy, we would be inclined to trim exposure to the oil sector. That is not to say we would exit entirely. With oil prices shifting higher, earnings expectations are likely to be revised up from prior assumptions anchored closer to the $50–$60 per barrel range, leaving room for continued earnings momentum in the near term. Second, after the recent rally, it may also be prudent to begin selectively adding portfolio protection. As volatility compresses following the initial risk move, the cost of hedging typically becomes more attractive than it was at the peak of uncertainty. In some cases, selling covered calls against existing positions can also be an effective way to monetize the recent rebound in individual stocks. More broadly, we would encourage investors to focus on opportunities created by the recent market move. Periods of sharp news-driven swings tend to create both overreactions on the downside and outsized rebounds on the upside. That pattern provides a framework: identify what has moved materially on the headline, assess whether the underlying fundamentals justify the move, and then scale back into positions gradually. We have seen this dynamic play out in markets such as South Korea, where periods of sharp drawdowns have been followed by strong recovery rallies once initial fears were reassessed. In these environments, disciplined re-entry into fundamentally strong companies tends to be more effective than trying to time the entire cycle.

Bottom line: We view this as a short-term, news-driven environment, where investors can use recent price moves as a framework to identify opportunities across outperforming and underperforming stocks and sectors.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Pricing in geopolitical risk: Oil, inflation and the cycle’s next phase .

—

Originally Posted April 13, 2026 – Hope or head fake: Is the ceasefire rally built to last?