Ceasefire Rally - Reality Check? | S3 E136 | 04-08-26

Markets surged on April 8 as investors reacted to news of a temporary two-week ceasefire between the U.S. and Iran. Oil prices plunged, yields moved lower, and inflation expectations eased — fueling a powerful relief rally in equities.

In this episode of Markets with Megan, Megan Horneman explains what’s really driving the move and why caution is still warranted. While the market is celebrating a pause in tensions, the details of the ceasefire remain unclear, the Strait of Hormuz situation is still highly fluid, and broader geopolitical risks have not disappeared.

Megan breaks down:

Why crude oil’s sharp drop is boosting optimism
How lower inflation expectations are helping markets
Why hedge fund short covering may be amplifying the rally
What ongoing Middle East tensions could mean for stocks, bonds, oil, gold, and the dollar
Why this may be a rally to respect — but not necessarily chase

Her view: welcome the relief, but stay grounded. Valuations still are not especially attractive, technicals are not compelling, and the risk of continued volatility remains high.

Subscribe for more market updates and practical insight on what’s moving the economy and markets.

📺 For more episodes, visit: https://marketswithmegan.fm

#StockMarket #MarketRally #Investing #Geopolitics #OilPrices #Inflation #FederalReserve #Volatility #EquityMarkets #MarketOutlook #Ceasefire #WarWithIran

https://youtu.be/yxU4Us3PvYw

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Transcript

Megan Horneman 0:00

We've

Relief Rally Sets The Scene

Megan Horneman 0:01

got a massive relief rally on our hands today. It's Wednesday, April the 8th, and this is Markets with Megan. If you like this podcast, you can subscribe, hit the alarm bell, share it with your friends, family, or colleagues. But we're here today to talk about what we're seeing in the equity markets, specifically because of the temporary ceasefire that was announced. There were details announced last night and then solidified here this morning that we do have a two-week ceasefire between the US and Iran. Now,

Oil Crash Pulls Down Inflation

Megan Horneman 0:31

there are a lot of things driving the market today. Obviously, the ceasefire is the biggest thing, but we're seeing crude oil plummet now 15%. It's the biggest single-day move lower since COVID. That's helping optimism from an economic standpoint. Also, we're seeing yields sharply lower because oil prices are lower. And because of all those things, you're seeing inflation expectations come down. The inflation expectations for the next one year dropped from about a 5.38% all the way down to 4.95%, specifically because of this big drop we've seen in crude oil prices. Also,

Hedge Funds Rush To Cover

Megan Horneman 1:10

there's one other thing to highlight that according to a Goldman Sachs article, that we're seeing hedge funds today because of this relief rally, they're doing um covering bearish bets that the fastest pace that we've seen since 2020 in that COVID aftermath. So again, a

Why The Ceasefire Looks Fragile

Megan Horneman 1:28

lot of things moving the markets today, but let's dig in a little bit to that main driver, and that is that relief around a ceasefire, or the fact that there wouldn't be a more heightened tensions at eight o'clock last night as the president was threatening. Now, we have the details out of both things that the that US wants and Iran wants. We are cautiously optimistic about this. We are not as optimistic though as this rally today is showing. I think some of this rally, as we mentioned, has to do with some technicals in the market being triggered, triggered, which then sends you know algorithmic trading, and we see a much bigger impact in the market. When we dig into the details of what each country wants, we're still far apart in this ceasefire deal. There's several things that both countries have dug their heels in about, um, and I don't foresee them changing. So there's a lot of work to be done. Uh these countries are the negotiators are supposed to meet in Pakistan um this Friday, April the 10th. We're

Israel Lebanon Confusion And Hormuz

Megan Horneman 2:27

already seeing some breakdowns of this and a lot of confusion around what the ceasefire really is supposed to mean, um, what it's supposed to be involved and what's not involved. And the biggest thing is the fact that Israel is a part of this war, and Israel is continuing to hit targets in Lebanon because of specifically terrorist regimes. And and Iran had said that the ceasefire deal meant all ceasefire and all fighting in Lebanon including. So we have a lot of miscommunication there or a lack of fact on what really is truly in that ceasefire deal. And we are getting reports that even though the Strait of Hormuz was a was a must have that must be open for any of the ceasefire to take place, we are getting reports that because of the continued fight with um that Israel is is putting on Lebanon, that the Strait of Hormuz is closed again. Uh, we we have again, these are reports that we're getting today. This situation is highly fluid and changes not only by the day, but really by the minute. Um, we're one tweet away from basically this market completely going the other way.

Why We Avoid Chasing Strength

Megan Horneman 3:35

So we continue to look at portfolios from valuations, fundamentals, and technicals. Right now, technicals in this market are not showing anything that's um overly compelling. We wouldn't sell on this strength, but we also wouldn't buy into this strength because valuations still aren't cheap. And in fact, even in the recent volatility that we've gotten, never really got cheap enough to put a significant amount of work into the market. From a fundamental perspective, we think that the that what we're seeing with the drop in crude oil, with the drop in inflation expectations, all of this is way too optimistic of what may transpire over the coming months. Instead, here our our base case scenario for what will happen is that we're gonna have ongoing extensions because two weeks is a very short period of time to work through where there still are quite a bit of differences. Um we think it's you know it's being caught a fragile ceasefire, and we would agree with that, but we do think some of these ongoing violations are going to take place. It's not just Israel and Lebanon, but there were reports of Saudi Arabia, the UAE, Kuwait, and Bahrain being hit today by Iranian targets. So this isn't completely over from that perspective. And remember, it's not just the US that has to abide by this. Israel is involved in this war as well as so many other now Middle Eastern countries. We do think because of that, that we'll get these rolling shutdowns of the strait.

Equity Volatility And Earnings Risk

Megan Horneman 4:58

So, what does that mean? For equities, expect volatility. You're expect some of these big up days as we get relief from some positive news, but also expect some pullback on this as we kick this can down the road. We still think that there's potential for earnings downgrades. While energy earnings can be revised higher, remember that energy makes up a very small portion of total earnings for the equity market here in the U.S. And some of those things that are being impacted, supply chain disruptions in the Strait of Hormuz, are major inputs into some of those areas of the market that we're supposed to lead earnings this year. Like if think about semiconductor chips. Um these there's components there that are kind of locked up here with the Strait of Hormouths being shut down. Bonds,

Bonds Fed Outlook And Oil Path

Megan Horneman 5:45

we think that unfortunately, higher yields most likely for the rest of this year. We don't think the Fed's going to be able to make any moves. We think that inflation will still be an issue because this takes time to work through. We've had an oil price shock. It's not going to come back online. The supply chain isn't coming back online immediately. There will be filter through effects that will be felt here in the near term. From an oil perspective, we've probably peaked what we saw here recently over $110 a barrel. And we do think that we, you know, coming lower below $100 is likely to remain, but it's going to stay elevated as we continue through these deals, which we said is likely to continue to get extended.

Gold Dollar And Crosscurrents

Megan Horneman 6:26

Gold, there's been a big disconnect between oil and gold. When oil prices have been going up, gold prices have been going down. So while we are getting a rally here in gold today, be careful because that relationship is still there. If oil prices reverse and go higher again, we could have some near-term weakness in gold. The dollar is probably peaked in its recent in its recent peak that we saw here, but because you're looking at higher yields and the Fed on hold, you may see the dollar supported here in the near

Key Takeaways And Next Data

Megan Horneman 6:56

term. So, in summary, um, we are cautiously optimistic, but we aren't as optimistic about this deal as the equity market is showing you today on the tape. We'll take the rally, it's welcome news, but we're not jumping in on this. Instead, we're gonna wait for the valuations to adjust to with our baseline scenario around inflation, around the Fed, around um crude oil prices. We'll wait for that to look more attractive and also technicals that's that that are that look um stretched here as we've seen this big pretty big rally. Now that's all we have today. We'll get inflation data tomorrow, which will be important. We'll come back to you with that. And as we mentioned, the situation is so fluid that we'll come back again as we get more information. If you want a history of our podcast, you can go to marketswithmegan.fm. Thank you.