Markets "swing wildly" between two narratives: "The war is almost over" vs "The Strait of Hormuz will be closed for a long time"

# Zhao Ying

Source: Wallstreetcn

Bullish and bearish signals clashed on the same day amid the Middle East turmoil, triggering multiple intraday reversals in crude oil prices, which ultimately closed up about 5%. Iran’s president laid out ceasefire conditions and the IEA coordinated a 400-million-barrel reserve release to boost sentiment, while Trump’s dovish remarks repeatedly pressured oil prices. However, ongoing bombings, Macron’s warning that Strait of Hormuz escort coordination would take “weeks,” and a series of tanker explosions in the Persian Gulf reignited risks.

The crude oil market endured an “information storm” of conflicting bullish and bearish signals on Tuesday. From the release of U.S. strategic petroleum reserves to Iran’s presidential statements, from the risk of a Strait of Hormuz blockade to Trump declaring the war “nearly over,” oil prices reversed course multiple times throughout the day before finishing roughly 5% higher.

JPMorgan traders noted that the day’s headlines simultaneously fueled two starkly opposing market narratives: one of an “exit ramp” toward de-escalation and stable oil prices, and another of “persistent risk” from a prolonged closure of the Strait of Hormuz.

Markets swung violently between the two narratives, with oil price volatility briefly rebounding to near Sunday night’s highs. Sustained high oil prices weighed on equities, with the S&P 500 closing lower, while bond markets also sold off, pushing yields up 5–8 basis points across the curve.

After hours, developments intensified further. Reports of an explosion aboard an oil tanker in the Persian Gulf sent oil prices higher and equities lower, quickly unraveling the brief late-session “decoupling” between stocks, bonds, and oil.

## Bullish Signals: Iran Lays Out Ceasefire Conditions, Reserve Release Boosts Sentiment

JPMorgan traders identified a headline at 2:15 p.m. as a key positive catalyst: Iranian President Pezeshkian tweeted that a ceasefire depended on the U.S. and Israel pledging no future attacks. JPMorgan called this the “exit strategy” signal from Iran that markets had been waiting for.

According to CCTV News, in a social media post late on March 11 local time, Iranian President Pezeshkian stated that the “only way” to end the current war, initiated by the U.S. and Israel, was to recognize Iran’s legitimate rights, pay war reparations, and secure firm international guarantees against future aggression.

Meanwhile, member states of the International Energy Agency (IEA) announced an agreement to release 400 million barrels of oil reserves, with coordinated global action easing supply concerns to some extent. Trump also made multiple dovish remarks throughout the day:

- At 9 a.m. ET, he claimed the “war with Iran is nearly over; Iran has almost nothing left.”

- At 12:15 p.m., he stated U.S. forces had destroyed nearly all of Iran’s mine-laying vessels.

- At 12:30 p.m., he urged oil companies to use the Strait of Hormuz.

- At 1 p.m., he promised “full security guarantees” for oil tankers transiting the Strait.

These comments repeatedly depressed oil prices in the short term, indicating that market expectations for de-escalation still held some resilience.

## Bearish Signals: Bombings Continue, Strait Escort Coordination Takes Weeks

Yet bears had ample arguments as well. JPMorgan traders pointed out that military strikes in the Middle East persisted—U.S. Defense Secretary Hegseth declared the day saw the most fighter jets, bombers, and strike sorties of the entire war. At 3:30 p.m. ET, massive bombings erupted over Israel and Lebanon, pushing oil prices to their intraday high.

French President Macron’s comments also weighed on markets. He said coordinating naval escorts for vessels in the Strait of Hormuz would “take weeks,” and that the strait remained “too dangerous” for U.S. Navy escorts at present.

According to Xinhua News Agency, Macron said on March 11 that amid current tensions in the Middle East, G7 members should coordinate actions to restore unimpeded navigation in the Strait of Hormuz as soon as possible. French media quoted Macron as saying he could not confirm Iran had laid mines in the strait, based on intelligence available to France or its partners.

Additionally, the FBI reportedly warned that Iran could launch drone attacks on California, sending oil prices sharply higher and equities lower immediately after the news. After hours, the Persian Gulf tanker explosion further reinforced the real risk of supply disruptions, tilting the bull-bear balance back toward the downside.

## Extreme Tail Risk: Right-Side Short Squeeze Looms

Despite prevailing bearish sentiment in U.S. equities, Goldman Sachs partner John Flood warned in media interviews that the market also faces risks of a sharp rally. He noted that hedge fund gross leverage is near all-time highs, driven primarily by persistent short positioning in macro products (indices and ETFs).

According to Goldman Sachs Prime Brokerage data, short exposure in U.S. macro products as a share of total U.S. market capitalization is at its highest level since September 2022, ranking in the 93rd percentile over the past five years.

“Once a headline declaring an end to the conflict hits, indices could surge sharply,” Flood said. “We could see a straight 2%–3% jump, with most of it coming from macro product short covering.”

At the same time, market liquidity has thinned, with ETF trading volume accounting for over 35% of total daily market turnover for seven consecutive sessions—near the 10-day record set during the 2020 COVID-19 pandemic. Flood warned that poor liquidity will exacerbate stock market volatility in the coming weeks.

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