While exchange is occurring, new highs are being reached—how far can this “peace expectation” rally in the US stock market go?

US stocks’ performance over the past two days has truly been split. On the one hand, the US military carried out “self-defense strikes” in southern Iran, and fighting between the two sides is ongoing; on the other hand, the market seems to have not noticed—both the S&P 500 and the Nasdaq hit new highs, and the semiconductor index has risen for five straight days.

After looking at some analysts’ views, the general idea is: although fighting is bad, the market is increasingly believing that the conflict will soon end in some kind of diplomatic compromise. The CEO of 50 Park Investments put it plainly—although the war has not ended yet, the situation may be resolved peacefully very soon, and profits are expected to continue growing, while the economy remains in expansion. Some even describe the current mood as “pathologically optimistic”—it’s as if investors are one-sidedly believing that the Iran war will end immediately and everything will return to normal.

In terms of the progress of the agreement, it is said that the US and Iran could reach a 60-day ceasefire this week, with a commitment to restore the Strait of Hormuz to pre-war conditions of free passage 30 days after the ceasefire. Iran is asking for the release of about $24 billion in overseas funds. Trump also publicly said the negotiations are “going smoothly,” but at the same time threatened that “if the negotiations fall apart, an attack could be launched,” so geopolitical risk has not been completely eliminated.

For the US stock market, the most direct benefit is that oil prices may continue to fall. If the Strait of Hormuz reopens, Brent crude could have a chance to fall back into double digits, and easing inflation pressure would give the Federal Reserve more room to cut interest rates—especially favorable for growth stocks. However, the rally is highly concentrated in AI and semiconductors, while crypto-related stocks have not caught up; COIN fell 2.69%, and CRCL dropped by nearly 8%. In an environment where the broader picture is uncertain, capital is more willing to bet on the AI infrastructure track, which has the highest visibility.

In short, the market has already priced in a lot of the peace-related “dividends.” In the days ahead, every move in the Strait of Hormuz will become the biggest source of short-term volatility.

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