Trump is "erratic," the market is "fluctuating wildly," and investors can only "grit their teeth and endure"?

The contradictory signals from the U.S.-Iran situation are pushing global markets into a prolonged period of intense turbulence, leaving investors caught between diplomatic hopes and the risks of escalating conflict.

This week, Trump claimed that the U.S. and Iran “are negotiating” and hinted at the prospect of a peace agreement, causing oil prices to drop and the stock market to rise accordingly. However, Tehran subsequently denied participating in direct negotiations, dismissing related reports as “fake news,” leading to a rapid reversal of the market’s gains.

According to Xinhua News Agency, the Wall Street Journal reported on the 25th that President Trump recently expressed to his advisors that he hopes to “end the war with Iran quickly” and aims to conclude hostilities “in the coming weeks.” However, there are still significant differences between the U.S. and Iran on core demands.

This chaotic signaling game has led to extraordinary fluctuations in oil prices, bond yields, and the stock market. Analysts warn that if negotiations break down or energy infrastructure suffers further attacks, recent market gains could evaporate quickly, and volatility will rise again.

Two paths being priced simultaneously, the market finds itself in a dilemma

The contradictory public statements from both the U.S. and Iran regarding negotiations this week have made it difficult for the market to form clear macro expectations. Reports indicate that the U.S. has proposed more than twelve ceasefire conditions to restart negotiations, but Iranian officials have denied these reports. Meanwhile, the Pentagon is reportedly planning to send thousands more soldiers to the Middle East, a move that could significantly escalate the intensity of the conflict.

“The market is struggling because it is trying to price in two competing paths simultaneously,” said Billy Leung, an investment strategist at Global X ETFs. “A diplomatic solution is being discussed, but the baseline scenario still includes risks of recent disruptions to energy flow, especially in the Strait of Hormuz.”

Marko Papic, a geopolitical strategist at BCA Research, pointed out that the positions of both the U.S. and Iran on sovereignty issues in the Strait of Hormuz are far apart, and negotiations “may happen or may not happen.” Despite ongoing military actions, the market has behaved as if the diplomatic process is advancing, and that dislocation itself is a risk.

The market is highly sensitive to headline news, with weak liquidity amplifying volatility

Behind this round of market turbulence is not only geopolitical uncertainty but also the fragility of the current market structure. Billy Leung noted that thin liquidity and light positioning have caused the impact of geopolitical news on the market to be magnified, with asset prices more closely following headline news fluctuations rather than converging on a clear macro trajectory.

Ben Emons, founder of Fedwatch Advisors, stated that the market currently assigns “moderate credibility” to the prospects of a peace agreement, but the caveat is that any agreement can only last for 30 days. Israel’s actions remain the biggest variable—any sudden attack could quickly escalate the situation.

In contrast, geopolitical events in Greenland, Venezuela, and Cuba in early 2026 hardly moved the market, as investors had become numb to the headline risks created by the Trump administration. “Greenland was a sideshow, Venezuela was a sideshow, Cuba was a sideshow,” said Ed Yardeni, president of Yardeni Research, “but the scale of this conflict is at the highest level.”

“Grin and bear it”: Historical experience supports long-term holding logic

In the face of ongoing uncertainty, some investors choose to anchor themselves in historical experience and hold their ground. “You just have to grin and bear it,” Ed Yardeni said, “historical geopolitical crises have almost always been buying opportunities.” He suggests that investors holding cash could position themselves in sectors benefiting from falling oil prices and reduced uncertainty, such as airline stocks and homebuilders, while advising those who have already profited from energy stocks to consider taking profits at the right time.

UBS strategists are clearly cautious about trading on geopolitical headlines, advising investors to maintain strategic stock positions and rebalance their portfolios using market rebound opportunities, reducing exposure to regions and sectors sensitive to high energy prices while increasing allocations to defensive assets and short-duration bonds.

Gautam Chadda, executive director at RBC Wealth Management, stated that the extreme cross-asset volatility also provides investors with a window to reposition, with his team shifting portfolios toward “beneficiaries of regional turmoil,” including fertilizer producers, defense manufacturers, and helium suppliers.

The economic impact is the true bottom line for the market

Robin Brooks, a senior fellow at the Brookings Institution, believes that the market’s ultimate focus is not on the political game itself but on the actual impact of conflict on the real economy. “Even if military escalation occurs, as long as tanker transportation volumes eventually rebound, the market will be jubilant,” Brooks said. “I believe we will see oil prices drop, global stock markets rebound, and everything return to normal.”

However, he also warned that if the situation remains deadlocked for an extended period, the impact will shift from mere price shocks to physical shortages, causing a rare drag on economic growth in decades. “The longer the conflict drags on, the more we move from price shock territory to physical shortages,” Brooks said.

For investors, the road ahead remains bumpy until clearer signals of a way out emerge.