Investors are misreading Iran conflict news: analysts

“Complacent” investors risk being led astray by continuing to misread developments in the Iran war, analysts said, after their hopes were dashed after markets reacted to the brief reopening of the Strait of Hormuz on Friday.

Investors’ growing optimism about an end to hostilities in the Gulf has helped stocks rise since the U.S. and Iran agreed to a two-week ceasefire on April 7. Tehran’s announcement on Friday that the strait was open to shipping caused a strong reaction in the market.

The S&P 500 gained 4.5% last week, while the Nasdaq Composite gained 6.8%. The latter also posted a 13th consecutive winning streak on Friday, matching a streak not seen since 1992.

But global stock markets faltered on Monday and reversed course as traffic across the strait ground to a halt once again.

The fragile ceasefire is set to expire on Tuesday and some strategists have warned that investors risk misreading how news about the conflict is reflected in market movements.

Matt Gertken, chief geopolitical strategist at BCA Research, said investors have adapted to responding to U.S. President Donald Trump’s tariff announcements since last year’s “liberation day,” but they need to understand that Trump is not completely in control of events in the Middle East.

“The market believes it’s like ‘liberation day,’ where President Trump can turn up the temperature, but then he can lower the temperature at the perfect time, and he’s the master,” he told CNBC’s “Squawk Box Europe” on Monday.

“But we may be in a different situation now because Iran has been attacked and their pain threshold is higher.”

The joy experienced on Friday over the reopening of the Strait of Hormuz, through which 20 percent of the world’s oil and liquefied natural gas supply passes, was short-lived when Iran announced that it was closed again the next day. According to investment manager Orbis, the resumption of uninterrupted energy flows forms the basis of a sustainable recovery in the stock market.

“It’s pretty clear to us that equity markets are looking at things from a ‘glass half full’ perspective,” Patrick O’Donnell, chief investment strategist at Orbis, told CNBC’s “Europe Early Edition” on Monday. he said.

“What we’re focusing on is whether the Strait of Hormuz will actually be reopened.”

He added that the consequences of the conflict in the Middle East will have a “fairly long-lasting impact” on the global economy and markets.

BCA’s Gertken also said Trump, whose Republican Party is facing an election year, has yet to receive assurances about Iran’s nuclear capabilities, one of the White House’s main war targets.

“In a 12-month period, investors need to take this issue seriously; they should not remain complacent about the crisis,” he added.

Deutsche Bank also urged caution in a note published on Monday.

Jim Reid, head of macro research, cited a “disturbing” comparison with recent history: The S&P 500 rose more than 10% in the first weeks of the war in Ukraine in 2022, as brief optimism about an early negotiated solution “disappointed” investors. The US index fell around 25 percent from its January peak to its October trough and finished the year down 19 percent, its worst showing since 2008.

“This incident is a clear warning sign,” he added.

Correction: Nasdaq Composite rose 6.8% last week. An earlier version stated the percentage incorrectly.