Why Markets Are Shrugging Off Trump's Hormuz Blockade
Key Points
Stocks were down in futures trading on the blockade before turning positive this afternoon.
Software stocks soared, a sign investors could be looking to capitalize on beaten-down stocks.
Investors seem to believe that the worst-case scenarios from the war are now behind us.
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Over the weekend, negotiations between the U.S. and Iran to end the war in Iran failed, and in response, President Trump announced a blockade of the Strait of Hormuz. The move is designed to prevent Iran from exporting its oil and strong-arm the country into accepting U.S. terms to end the war.
In response to the blockade and the failed negotiations, stock futures were trending lower Sunday night and Monday morning, though by this afternoon, all three major indexes were up, a sign investors were content to look past the latest setback in the war.
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Oil prices, meanwhile, were up on Monday, but those gains faded during the session.
Image source: Getty Images.
Will the war end in a bang or a whimper?
For weeks, investors have closely followed events in Iran with markets swinging on nearly every major shift in the war or commentary from President Trump, including the surge in stocks last week after Trump's announcement of a two-week ceasefire.
The ceasefire was supposed to come with a reopening of the Strait of Hormuz, though that hasn't really happened. However, with the fighting having paused at least, investors may now believe that the worst-case scenario, a sustained conflict that leads to a global energy crisis, is off the table.
The reality is that the war might not end with the decisive peace agreement that Trump wants and may instead remain something of a stalemate, though resolving the bottleneck around the Strait of Hormuz will be crucial for investors.
What else is moving markets
As investors redirect their attention from the war in Iran, they are looking for opportunities, and one of them appears to be in software stocks.
The iShares Expanded Tech-Software Sector ETF (NYSEMKT: IGV) was up more than 5% in afternoon trading, reflecting a risk-on appetite from investors. There wasn't any clear news pushing the software sector higher, though a post from Goldman Sachs arguing that tech stocks were oversold last Friday may have helped spark the recovery in the sector.
As far as the Iran conflict goes, it's too soon to say the worst is behind investors, but they seem to be preparing for that possibility and taking advantage of oversold stocks.
Investors should keep an eye on news from Iran and movements in oil prices, but don't be surprised if markets start to decouple from events in Iran as other narratives emerge.
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