The Nasdaq-100 index is up 5.9% since last Friday's closing bell. The S&P 500 (^GSPC +1.18%) gained 4.4% over the same period. The Dow Jones Industrial Average (^DJI +0.59%) is up 3.3%. All three rose more than 1% on Friday, as of 1:50 p.m. ET. And it's all because of a narrow waterway 6,600 miles from Wall Street.
Friday's big news was a ceasefire between Israel and Lebanon, which led to Iran's foreign minister declaring the strategic Strait of Hormuz "completely open" for commercial traffic. Oil prices fell more than 10%, and the stock market responded with bullish moves in every sector except Energy and Utilities.
Iran says the Strait is open; tanker captains aren't so sure
A clear passage through the Strait of Hormuz is great news for the global economy, as restricted oil supplies have been weighing on everything that requires energy since the end of February.
However, the Iranian declaration isn't the same as a completely open shipping channel. President Trump quickly noted that the U.S. blockade of Iranian oil vessels remains in effect. Moreover, actual traffic will probably stay low until somebody proves that no mines are floating around the strait.
As a result, the traffic isn't close to normal volumes. 14 ships have reportedly made the Hormuz transit in the last 24 hours, up from 6 at the same time yesterday. That's still only 23% of the normal daily traffic. Oil prices (and their impact on prices at your local gas pump) will stay elevated and unpredictable until the shipping system is fully operational again.
The oil drama is largely overriding the early days of another earnings season, highlighted by strong results from banks and a big earnings surprise (but bearish market reaction) from Netflix. Next week will see hundreds of earnings reports, with many updates from the volatile tech sector. Even so, the Iranian conflict will continue to set the market's overall tone -- and the incoming Q1 reports include plenty of business effects from the unpredictable oil prices in March.
Image source: Getty Images.
Small victories in a fragile situation
Let's celebrate the small victories, though. The Strait of Hormuz normally handles about 20% of the global crude supply. Its near-total closure since late February created the largest oil disruption in history. Even a partial reopening is a big deal.
There's a lot of hope riding on a very fragile situation right now. The ceasefire terms of two separate but related conflicts are still being contested. The U.S. blockade is active. And Iran has made clear the strait will close again if the country's conditions aren't met.
But for now, markets are choosing optimism. Tech is surging, energy is retreating, and the major indexes are posting their best week in months. Enjoy the rally, but keep an eye on further complications.
In a market this sensitive to geopolitics, diversification isn't just smart; it's essential. Also, you'll sleep a lot better if you ignore the daily price swings to focus on the market's long-term prospects.
