After weeks of extreme price swings driven by US President Donald Trump’s social media posts regarding the Middle East conflict, a temporary ceasefire has offered some reprieve to exhausted traders and fund managers. The president’s rhetoric had swung widely, causing significant market volatility, including a 2.6 per cent jump in the S&P/ASX 200 on Wednesday. This fluctuating sentiment proved challenging, even for those betting on the “TACO trade” – “Trump always chickens out.” The market collectively breathed a sigh of relief following the agreement between the US and Israel with Iran for a two-week ceasefire, which includes the temporary reopening of the crucial Strait of Hormuz, a conduit for about 20 per cent of the world’s energy supply.
Hugh Dive, chief investment officer at Atlas Funds Management, an investment firm that manages money on behalf of clients, noted he could not recall another time when market sentiment during a major geopolitical conflict so heavily hinged on the words of a single person, outside of Trump’s first term. Dive expressed frustration, recalling how stocks would swing significantly overnight without clear justification, often attributable to a presidential tweet. Alex Pollak, chief investment officer at Loftus Peak, an investment firm specialising in global technology and innovation investments, affirmed his firm had not made significant investment changes. Pollak stated their portfolio strategies do not account for extreme, unlikely events such as catastrophic societal collapse.
Whilst markets rallied on Wednesday and oil prices plunged below US$100 a barrel on expectations of an eased supply crunch, many in the market remain sceptical about the longevity of this calm. ANZ senior commodity analyst Daniel Hynes described the ceasefire as not a “clear-cut sort of agreement,” anticipating it will remain a major issue for the oil market. Dive echoed this sentiment, viewing the current calm as a “relatively temporary reprieve” that might not even last the full two weeks, indicating no immediate plans to sell oil stocks. UBS equity strategist Richard Schellbach suggested investors’ willingness to look through such volatility stems from “learned experience over the last decade,” where markets have historically recovered from sell-offs.
