When does it end? That’s the question markets want an answer to right now.
The situation in Iran remains highly fluid—but for the first time, there are real signs that a diplomatic resolution may be taking shape.
As we write, President Trump says his administration is engaged in productive talks with Iranian leadership—and that those discussions may lead Iran to renounce its nuclear ambitions, Trump’s top priority.
While markets clearly want closure, stocks this week have shown cautious optimism in response to Trump’s signals of diplomatic progress. The S&P 500 rose roughly 1.2% on Monday following news of negotiations, before giving back 0.4% yesterday.
With reports of a 15-point peace proposal having been delivered to the Iranians via Pakistan, futures markets this morning point to a strong open. A barrel of crude oil, meanwhile, has fallen below $100.
Trump sees movement in the right direction, but conflicting statements from Iranian state media and other officials continue to cloud the picture.
It remains unclear who the administration is actually engaging with—or what authority those individuals hold within a regime that appears increasingly fractured.
For security reasons, Trump cannot disclose the identities of those involved in the talks. That lack of transparency makes it difficult for investors to assess how meaningful these discussions really are.
Markets wait for clarity
The end of the war—and the reopening of the Strait of Hormuz—would be a clear win for markets. But investors aren’t convinced yet.
Since Operation Epic Fury began in late February, stocks have been pressured by rising oil prices and geopolitical risk—but not overwhelmed.
The S&P 500 is down just under 5%, a meaningful move, but, for perspective, far less severe than the sell-off that followed the Liberation Day tariff announcement.
In April 2025, the S&P 500 saw a peak to trough drawdown of 12% before recovering once Trump softened his stance.
As we have discussed in earlier notes, market weakness over the past few weeks is not surprising, given the war’s real short-term impacts on the economy.
Higher oil prices are both a headwind to growth and a source of inflationary pressure. And regardless of what one believes the Federal Reserve should be doing in the face of higher energy prices, Fed officials have made it clear that high oil prices only add to their reluctance to cut interest rates.
While the conflict remains a near-term source of volatility and risk aversion, we believe the U.S. is on track to achieve its core objectives—laying the groundwork for a market recovery.
In fact, extraordinary progress has already been made, particularly in degrading Iran’s military capabilities.
From here, the key catalyst is the resumption of traffic through the Strait of Hormuz. We see that as a matter of when, not if—and a diplomatic breakthrough could accelerate that timeline considerably.
Once oil shipments begin flowing normally again, Iran should cease to be a meaningful overhang, and we would expect a notable improvement in market sentiment.
Trump’s many critics
Since the outset of Operation Epic Fury at the end of February, critics across the political and media landscape have argued that the administration lacks a clear plan.
Within days, for example, The Economist characterized the intervention as “a war without a strategy.”
Others have suggested the administration was unprepared for the possibility that Iran might attempt to disrupt traffic through the Strait of Hormuz—despite the fact that securing the strait has been a core U.S. naval priority for decades.
This complaints rest on a flawed premise: that military operations should unfold according to a fixed, fully disclosed blueprint.
As the nineteenth-century military theorist Carl von Clausewitz observed, war is “the continuation of policy by other means.”
War is not separate from negotiation—it is part of it. And like any negotiation, it evolves in response to the actions of the other side.
Ambiguity is not recklessness. Effective strategy in wartime requires flexibility—and often, a degree of secrecy. Objectives remain, but the path to achieving them is rarely linear or knowable in advance.
This dynamic can be frustrating for outside observers.
Members of Congress may want detailed timelines.
Members of the media may want prior notice (like the Japanese reporter who said he felt “confused” that Japan was not alerted beforehand).
Investors, in particular, want certainty. But markets do not get certainty—they get outcomes.
And historically, periods of elevated uncertainty like this tend to create opportunity. Those who remain positioned, despite the volatility, tend to be rewarded as clarity emerges.
Short-term pain, long-term gain
Operation Epic Fury may not have happened under a different President. A more likely path could have been continued diplomatic engagement and incremental concessions.
Confrontation carries real costs—and those costs are now visible. Higher oil prices, increased market volatility, and political pushback are all part of the equation.
But the presence of short-term costs does not make a decision misguided.
Iran has challenged U.S. strategic interests for decades, and its alignment with China and Russia only heightens its importance within the broader geopolitical landscape.
When Iran makes life difficult for the U.S. by sowing chaos throughout the Middle East, this just strengthens the hand of the other great powers, which seek a diminished America within a new “multi-polar” world order.
Much of the focus has centered on Iran’s nuclear ambitions. But equally important has been the steady expansion of its conventional military capabilities.
Just a few days ago, evidence surfaced of Iran’s long-range missile capacity, with an attempted strike on Diego Garcia, a U.S. base more than 2,000 miles away in the Indian Ocean.
Iran’s path to becoming a nuclear power was not just about enrichment timelines—it was also about its ability to deter intervention. And as its conventional capabilities grew, so did the potential cost of stopping it.
In theory, the U.S. could have waited until Iran’s nuclear program was on the verge of completion—what some might consider the crossing point for “an imminent threat.”
But by then, the risk of military engagement may have been significantly higher—perhaps to the point of inaction. That risk could be measured in thousands of lives, not just a short-term jump in the price of gasoline.
From a long-term perspective, what has been accomplished in just a few weeks is remarkable. Iran’s overall ability to threaten the world has been severely degraded.
This has been achieved not only through direct strikes on nuclear infrastructure, but through the near-total destruction of its conventional military capacity—which itself represented a growing deterrent against those strikes.
Is this a TACO?
While some critics opposed the operation from the outset, others are now questioning whether the administration risks ending it too soon. For this group, degrading Iran’s capabilities is not enough—they want to see the regime itself removed.
The phrase “Trump Always Chickens Out,” or “TACO,” has often been used when the administration pivots toward compromise.
Is diplomacy at this stage a retreat—or simply the most efficient way to secure the optimal outcome at an acceptable cost?
In an ideal world, Iran would be led by a stable, peaceful, and perhaps even democratic government—one that renounces terrorism and seeks constructive engagement with the West.
But recent history offers a sobering reminder. As Iraq demonstrated, replacing a flawed regime with a better one is far more difficult—and far more costly—than it appears in theory.
While additional forces have been positioned in the region—and targeted actions such as securing critical infrastructure like Kharg Island remain conceivable—the administration has made clear that a prolonged ground conflict is not acceptable.
The goal of this operation has always been more narrowly defined: to eliminate Iran’s nuclear threat and significantly degrade its ability to project power across the region.
By most measures, those objectives have already been accomplished.
What remains is the final step—ensuring that Iran no longer disrupts commercial activity in the Persian Gulf, particularly through the Strait of Hormuz. One way or another, that outcome will be achieved, either through the application of brute force or some kind of negotiated settlement.
Once the strait is reopened and oil flows normalize, the primary overhang on global markets disappears. And when that happens, investors will no longer be focused on geopolitical risk—but on the growth opportunities that lie ahead.
