Global markets rallied sharply on Wednesday after the United States and Iran agreed to a two-week ceasefire, easing immediate fears of a prolonged disruption to oil flows through the Strait of Hormuz and triggering a broad risk-on move across equities, bonds, and currencies.
Futures tied to major U.S. indexes surged in early trading, reflecting a rapid shift in investor sentiment after weeks of volatility driven by the conflict. At 04:05 a.m. ET, Dow E-minis rose 1,045 points, or 2.23%, while S&P 500 E-minis climbed 2.44% and Nasdaq 100 futures jumped 3.16%. The move was echoed globally, with equity markets across Asia and Europe gaining between 4% and 5% as investors moved back into risk assets.
The relief rally was most visible in the oil market, which had been the central transmission channel of geopolitical risk. Crude prices fell sharply as traders began pricing in the potential resumption of energy flows through the Strait of Hormuz, a narrow but critical shipping route that typically handles about one-fifth of global oil trade. Brent crude dropped to around $94.49 per barrel, while U.S. West Texas Intermediate fell to roughly $96.20, marking declines of between 13% and 16% in early trading.
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The agreement itself came just hours before a deadline set by Donald Trump, marking a sudden de-escalation after weeks of increasingly hostile rhetoric. Trump had previously warned of wiping out “a whole civilization” if Iran did not reopen the strait. Under the terms of the ceasefire, Washington will halt strikes on Iranian infrastructure, while Tehran has agreed to allow the safe passage of ships through the waterway “via coordination with Iran’s Armed Forces,” according to Foreign Minister Abbas Araghchi.
The immediate market reaction underscores how tightly asset prices had become linked to oil supply risks. Energy stocks, which had rallied during the conflict, reversed course in premarket trading. Shares of Exxon Mobil fell 6.2%, Chevron dropped 5.4%, and Occidental Petroleum lost 7.8%, tracking the sharp decline in crude prices.
At the same time, sectors that had been under pressure from elevated fuel costs staged a strong rebound. Airline stocks surged, with American Airlines rising 7.3% and Delta Air Lines up 6.8%, while cruise operators Carnival Corporation and Norwegian Cruise Line gained 9.4% and 8.1% respectively.
The move extended into volatility markets, where the CBOE Volatility Index fell by more than five points to 20.77, its lowest level in over two weeks, signaling a rapid unwinding of hedges built up during the conflict.
In fixed income, U.S. Treasurys rallied as easing inflation expectations and reduced geopolitical risk drove yields lower. The benchmark 10-year yield fell more than 10 basis points to 4.2399%, while the 2-year yield dropped to 3.7193% and the 30-year yield declined to 4.8482%. The move reflects a renewed bid for bonds as investors reassess the likelihood of sustained energy-driven inflation.
Currency markets also reacted swiftly. The dollar, which had benefited from safe-haven demand during the conflict, weakened about 1% against the Japanese yen, signaling a reversal of defensive positioning.
Yet beneath the market euphoria lies a more cautious undertone. Analysts warn that the rally rests on a fragile foundation, with the ceasefire offering only a temporary pause rather than a definitive resolution.
“The rally will need to be backed up by tangible progress in negotiations to hold. The underlying question of whether Iran will permanently reopen the Strait of Hormuz and whether a lasting deal can be reached is still very much unresolved,” said Josh Gilbert, market analyst at eToro.
He added a note of caution that underscores the binary nature of the current setup: “If the two weeks pass without a deal, expect a sharp and unforgiving reversal of this relief rally.”
That assessment captures the central risk now facing markets.
The past five weeks have shown how quickly geopolitical shocks can transmit into oil prices, inflation expectations, and monetary policy outlooks. Before the ceasefire, traders had already scaled back expectations for Federal Reserve easing, with persistent energy inflation complicating the central bank’s path.
The latest moves suggest a partial unwind of those concerns, but not a full reset. Short-term Treasury yields declined, and interest-rate futures now price in a 56% probability of a 25-basis-point rate cut by the end of 2026. That remains a more cautious outlook compared with pre-war expectations, when markets had been betting on at least two rate cuts this year.
The next phase will depend heavily on incoming data and policy signals. Investors are set to scrutinize remarks from Federal Reserve officials, including Mary Daly and Christopher Waller, as well as minutes from the central bank’s March meeting. Inflation data due later in the week will also be critical in determining whether the recent oil shock has left a lasting imprint on price pressures.
However, markets are currently trading in relief. But the underlying dynamics suggest this is less a resolution than a repricing pause. The trajectory of oil, the durability of the ceasefire, and the Federal Reserve’s response will determine whether Wednesday’s rally evolves into a sustained recovery or proves to be another short-lived rebound.