On Monday, oil prices plunged over 13%, U.S. Treasury yields fell sharply, and U.S. stock futures surged, just minutes after former President Trump announced on Truth Social that he was abandoning plans to bomb Iranian energy infrastructure. Although Iran denied Trump's claim of ongoing negotiations less than an hour later, this did not reverse the market's overall trend for the day. Analysts noted that the market reacted this way because, from Wall Street's perspective, the signal was very clear: at the very least, Trump himself is eager to end the war he started over three weeks ago, which has pushed the global economy to the brink of crisis.
Some analysts suggested that if the situation is not resolved within the next 7 to 10 days, we could witness a global economic shutdown similar to the pandemic period. Today's statement indicates that Trump recognizes the risk of a "cliff-like drop" for the real economy. Trump's actions triggered a sharp, approximately five-minute rally and served as a footnote to Wall Street's most volatile trading day since the U.S. and Israel initiated conflict with Iran. This scene also recalls April of last year when Trump launched "America vs. Global" tariffs, pushing global financial markets to the edge before quickly reversing course.
Media reports citing informed sources indicated that, similar to the previous incident, Trump's latest statement was partly intended to reassure investors unsettled by market turbulence and to prevent a new wave of heavy selling at the start of the week. After U.S. markets opened on Monday, the S&P 500 index rose as much as 2.2%, marking its largest gain since May. The two-year U.S. Treasury yield plummeted 22 basis points from its high to 3.79%, Brent crude oil plunged below $100 per barrel, the U.S. dollar weakened, and European stock and bond markets turned from losses to gains, closing higher.
However, beneath the surface, doubts remained about whether Trump can easily end the conflict. As this sentiment spread, early gains across various asset classes gradually eroded. Many investors suspect that Trump's Monday statement was primarily a short-term measure to stabilize markets. By the close of U.S. trading on Monday, the S&P 500's gains had narrowed to about 1.2%, and the rally in the U.S. Treasury market had also receded.
These market movements highlight that verbal reassurances alone are insufficient to convince investors who are already preparing for prolonged Middle East instability. Some worry that the situation is no longer entirely within Trump's control, unlike tariffs which could be called off at any time. Those who feel reassured by his sensitivity to market reactions may be misjudging the situation.
During the first year of Trump's return to the White House, traders developed an expectation that he would often quickly reverse course if a policy caused a significant market decline. This phenomenon, dubbed the "TACO trade" (Trump Always Capitulates Eventually), also fueled a "buy the dip" mentality—whether the trigger was trade war threats, proposing to take over Greenland, or criticizing the Federal Reserve.
However, the war with Iran has weakened this belief. Over the past few weeks, the conflict has continued to escalate: Trump has at times declared victory was near, while at other times accused allies of failing to provide support. Iran has remained resilient, cutting off a crucial global energy supply by blockading the Strait of Hormuz.
The impact of the Middle East conflict became more apparent last week. Soaring energy prices delivered a new inflationary shock, leading traders to bet that global central banks would be forced to raise interest rates further. This intensified "stagflation" risks—a combination of weak growth and rising inflation—and contributed to a loss of over $2.5 trillion in value in global bond markets, potentially marking the worst monthly decline in over three years.
This also underscores how the war is impacting other policy goals of the Trump administration, including lowering mortgage rates, reducing oil prices, and projecting an image of U.S. economic strength ahead of the midterm elections. Although Trump has repeatedly criticized Federal Reserve Chair Jerome Powell for not cutting interest rates, the two-year Treasury yield had risen more than 0.5 percentage points since the conflict with Iran began as of last Friday, reflecting market concerns about inflation constraining policy space.
Some analysts point out that while Trump is clearly trying to suppress oil prices, it may be, once again, the bond market that is forcing him to concede. Following a stock market decline on Friday, with the S&P 500 recording its longest weekly losing streak in a year, Trump stated on social media that he was "very close" to achieving his goals and was considering scaling back military operations in the Middle East.
He subsequently threatened to attack Iran's power infrastructure if it did not reopen the Strait of Hormuz within 48 hours. But by Monday, he said he would suspend action for five days, claiming progress in negotiations—a claim denied by Iran. In the view of many, Trump's shifting stances and inaccurate statements are eroding his credibility in financial markets, severely disrupting market positioning. One analyst stated bluntly:
The most difficult thing to predict is not the war itself, but the White House's communication style and the extent of the market's reaction to it. The market cannot determine whether this is a credible signal that the end is near or just another instance of a claim being nearly fully realized.
Perception often defines reality, and Trump's unpredictability adds another layer of uncertainty on top of existing doubts. This反而 limits the ability of previously confident bears to push the market significantly lower. Such back-and-forth buys time for the market while also curbing overconfidence—for better or worse.
