President Donald Trump Just Made a Huge Announcement About the Iran War: Here's Why it Could Be a Major Turning Point for the Stock Market

Several hours before the market opened today, stocks were poised to start the week with big losses. However, everything changed when President Donald Trump announced that the U.S. would suspend plans to conduct strikes on Iran's power plants and key infrastructure for five days, after holding 'productive' talks with officials in Iran.

Trump further told CNBC that "we are very intent on making a deal with Iran."

Official White House photo by Joyce N. Boghosian.

The Dow Jones traded 900 points higher, as of 10:32 a.m. ET today, although state media in Iran had denied holding talks with Trump, as of this writing.

Still, the market clearly views Trump's willingness to negotiate as a strong positive. It's certainly a major announcement by Trump and could be a major turning point for the stock market as well.

Ending the war would likely help quell concerns about stagflation

While the U.S. military has weakened Iran's military capabilities, the regime has still been able to wreak havoc in the Middle East.

Furthermore, the conflict has deterred oil tankers from traveling through the Strait of Hormuz, a key passage effectively controlled by Iran that sees one-fifth of the world's oil consumption flow through daily.

This has led oil prices to surge above $100 per barrel at times, stoking inflation concerns. In fact, investors over the past weekend began to price in the possibility that the Federal Reserve might actually raise interest rates later this year. Bond yields had surged. This was happening as the market grew increasingly concerned about signs of weakness in the labor market and economic growth.

Together, these suggested the possibility of stagflation, characterized by high inflation, high unemployment, and slow growth. Investors are fearful about stagflation because it makes it more difficult for the Fed to achieve its dual mandate of stable consumer prices and maximum employment. In this scenario, the Fed's rate moves may help achieve one of the Fed's mandates while potentially worsening the other.

If Trump can end the war sooner, rather than later, the U.S. economy can likely avoid a worst-case stagflation scenario, which is why markets are responding well.

While the issues with high oil prices wouldn't go away overnight, there would be a clearer path to seeing oil decline back to much lower levels in the coming months if the Strait of Hormuz is open and critical oil and energy infrastructure in the Middle East is believed to be safe.

While the stock market faced issues prior to the war in Iran, the major indexes had been performing decently, and the majority of market strategists still believed the broader market would deliver solid gains this year. An end to the war is likely to renew this mindset.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.