The U.S.-Iran ceasefire has fallen apart. Now what?

With the ceasefire between the U.S. and Iran having fallen apart, at what point should investors start to reckon with the consequences of a potentially prolonged conflict?

Market recap

• Equity markets were mostly lower this week as some encouraging U.S. inflation data was countered by a slide in some high-flying sectors.
• The S&P 500 fell 1.6% on the week, with technology and communication services posting the sharpest declines.
• Meantime, the TSX was essentially unchanged (-0.1%) with support from energy, industrials and banks.

U.S.-Iran

The ceasefire between the United States and Iran has fallen apart, with military strikes between the two countries intensifying and the Strait of Hormuz effectively closed once again.¹ It is time for investors to start grappling with the possibility of a prolonged conflict and what that would mean for supply chains and oil prices? Our view is that if the conflict still hasn’t been resolved by the time the U.S. midterm elections roll around, then a more cautious stance would be warranted, because then the timeline of the conflict could really stretch out. For now, the U.S. administration remains motivated to get a deal done, because if they do not, then oil prices could become a major ballot box issue in November. Because of this ticking clock, Iran’s leverage is currently the highest that it is likely to be at any point. If the elections come and go without a deal, then President Trump would be unbounded, as changes in public sentiment wouldn’t have any immediate consequences. Given this dynamic, we do think there is room for oil prices to go higher from here, especially since we haven’t yet seen them spike back up to pre-ceasefire levels. Looking further ahead, another important consideration is that the Iranian regime doesn’t always operate like other governments; it may not evaluate the conflict solely in terms of its economic impact, rather viewing it as a broader attack on the country itself. That could precipitate longer-lasting issues between the two nations, as well as American allies in the region. In our view, these risks should be priced in by markets, even if they are not our base case scenarios. Even if another memorandum of understanding is signed soon, markets are not likely to have much confidence in it given that the previous agreement began to unravel almost immediately.

Bottom line: November’s U.S. midterm elections are the ticking clock, and if the conflict still hasn’t been resolved by then, then investors should get worried.

Bank of Canada

Amid this geopolitical uncertainty, the Bank of Canada (BoC) opted to hold interest rates steady at 2.25% at its meeting last week.² We think this was the right move. At some point, we would love to see a rate cut in order to provide Canadian consumers with a bit of relief and induce some additional spending; right now, some people are bracing for potential rate hikes, and are therefore not spending as much as they would otherwise. There is also the impact of higher oil prices (albeit offset somewhat by tax cuts at the pump) and the fact that a boost from any new United States-Mexico-Canada Agreement (USMCA) is not likely to materialize any time soon. While a rate cut to get things moving would be nice, for now we’re content that the BoC is talking down the possibility of rate hikes. In our view, that is at least one step in the right direction.

Bottom line: While we would like to see rate cuts from the BoC at some point, they do not appear to be in the cards in the near term.

Earnings

The major U.S. banks have released their quarterly earnings reports, and overall, the results looked good. Not every stock did exactly what one might expect based on the strength of the numbers—of the “big four” U.S. banks, Wells Fargo and Citigroup were down while J.P. Morgan and Bank of America were up. Generally, however, the underlying numbers looked encouraging and appear to be supportive of strength going forward. The results also highlight that the U.S. consumer is continuing to hold up a bit better than many were expecting; we did not see any major warning signs in terms of consumer health or the overall health of the U.S. economy. Our expectation is that we will continue to see good results from U.S. Financials going forward, which aligns with a potential mid-year rotation to sectors that have lagged behind. The banks’ attractive yields are another reason why some investors may be interested in that kind of trade.

Bottom line: We view an allocation to U.S. banks as a good way to look ahead to a potential rotation, and the latest earnings justify staying in that position.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Risk-on, radar up: a constructive setup, but still cautious outlook

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Originally Posted July 20, 2026 – The U.S.-Iran ceasefire has fallen apart. Now what?

Source

¹John Gambrell, “US strikes bridges in Iran, which targets a water desalination plant in Kuwait,” The Associated Press, July 17, 2026. 

²Judy Trinh, « Bank of Canada holds key rate steady at 2.25%, predicts economic rebound », BNN Bloomberg, 15 juillet 2026.