Brutal Quarter Ends With a Rally — But Risks Are Rising

The quarter closed with a sharp rally driven by shifting geopolitics in the Middle East. On Tuesday, former President Donald Trump signaled openness to ending the conflict even if the Strait of Hormuz stayed closed, while Iranian President Pezheshgian pledged the will to cease hostilities in exchange for security guarantees. Those comments lifted investor optimism that the oil‑shipping bottleneck could ease, prompting a swift market bounce. Analysts view the dialogue as a catalyst that reduced the perceived risk of a prolonged supply shock, allowing equities to regain lost ground.

Both the S&P 500 and Nasdaq posted notable rebounds after weeks of steep declines. The S&P 500, which had fallen as much as 9 % from its January peak and was on track for its worst quarterly performance since 2022, surged roughly 3 % on the rally day. The Nasdaq, previously down 13 % and flirting with correction territory, jumped nearly 4 % in the same session. The bounce highlights how quickly sentiment can flip when geopolitical headlines improve, but it also underscores lingering volatility as investors weigh earnings pressure against the easing of war‑related risks.

Alongside equity gains, the dollar slipped and Treasury yields retreated, reflecting broader risk‑off to risk‑on rotation. Brent crude stayed above $100 per barrel, signaling that oil prices remain elevated despite the hopeful diplomatic tone. The combination of a softer greenback, lower yields, and still‑high oil prices creates a mixed backdrop for the coming months. Market participants will watch for concrete peace steps and any further statements from Washington or Tehran, as those will dictate whether the rally sustains or gives way to renewed uncertainty.