Two hours before his latest deadline, President Donald Trump canceled Obliteration Day. He agreed tonight to a two-week ceasefire with Iran. The deal was brokered by Pakistan. Trump confirmed the US had received a 10-point proposal from Iran as a basis for negotiating a permanent peace agreement. Israel separately agreed to suspend its bombing during negotiations.
The market reaction was swift. Crude oil prices tumbled, while S&P 500 and Nasdaq 100 futures climbed. Bond yields edged lower. The dollar weakened, and gold moved higher.
The ceasefire confirms our call last week on Tuesday night that the S&P 500 had bottomed on Monday. Our favorite stock market sentiment indicator remained bearish this week, which is bullish from a contrarian perspective (chart). However, a two-week pause is not a resolution. Financial markets will remain sensitive to any breakdown in talks.
Let's consider the consequences on the home front. As we signaled last week, we are lowering the risk of a recession back down to 20% from 35%. Recently released data suggest the US economy was on a resilient growth path heading into the latest oil price shock and even through March when the war was raging. The labor market seems to be improving by some measures.
