For a few sessions, markets behaved as if the war was already over. Wall Street rode a nine-day winning streak into fresh records, oil drifted lower, and the path of least resistance looked firmly higher. This week reminded everyone how thin that confidence was. A peace deal that looked nearly done has flipped back into open fighting, and the price tape is once again being asked to decide which signal to trust.
A Truce in Name Only
The framework on the table is a familiar one: extend the ceasefire by roughly two months, lift the U.S. blockade, and reopen the Strait of Hormuz in stages. The problem is that the shooting hasn't stopped. Iranian drone and missile strikes hit Kuwait, damaging its main airport and killing one person, while the U.S. carried out strikes near the strait and Washington and Tehran traded fresh retaliations. The House passed a war powers resolution rebuking the administration's handling of the conflict, a largely symbolic move but a telling one. Markets are being asked to hold two contradictory ideas at once: that a deal is still close, and that the war is far from contained.
That ambiguity showed up most clearly in crude. Oil climbed back toward the $100 mark, with Brent rising around two percent as the renewed fighting put the Hormuz risk premium back into the price. The strait remains largely closed more than three months after the U.S. and Israel launched strikes on Iran. As we've noted before, the disruption premium compresses gradually rather than in one clean session, and this week it moved the other way entirely.
Wall Street's Streak Snaps
The renewed risk premium was enough to break the rally. The S&P 500 fell from its all-time high and snapped a nine-day winning streak, with the Dow and Nasdaq both finishing lower. Treasury yields also climbed in the bond market to further crank up the pressure on stocks, a reminder that the inflation channel from oil to bonds to stocks is still very much live. What's worth flagging for bulls is that even a strong earnings print couldn't fight the tape: Palo Alto Networks fell even though it reported profit for the latest quarter that topped analysts' expectations, a sign that after a long run higher, good news was no longer good enough.
Tokyo Refuses to Flinch
The standout, once again, was Japan. While Wall Street pulled back, the Nikkei 225 jumped more than two percent to close above 68,000 for the first time, setting a fresh record as a continued rally in technology stocks lifted the market. The move was led by chipmaking equipment manufacturer Tokyo Electron and semiconductor testing equipment maker Advantest, with Japanese firms positioned to benefit from the global expansion of AI infrastructure. The decoupling is striking: optimism around AI outweighed concerns over the lack of progress in the U.S.–Iran negotiations,.
The yen complicates that picture. The Bank of Japan has been on a gradual tightening path, with a June hike now treated as the base case and the 10-year government bond yield at its highest in decades, conditions that usually argue for a stronger currency. Yet intervention risk lingers whenever the yen weakens too far, and a sudden move from Tokyo could ripple through the carry trades that have funded positions worldwide.
For now, the two forces are clear. A genuine deal lifts equities and eases oil, a breakdown sends crude back toward its highs and keeps central banks boxed in. With strikes still landing, the market has to weigh a settlement that keeps being announced against a war that keeps being fought.