TACO time: Oil prices plunge the most since 2020 and stocks surge after the Iran war ceasefire

Oil prices saw their biggest drop since 2020 and stocks surged as traders cheered the Iran war ceasefire.
It's a fresh case of Trump triggering a relief rally in markets by reversing course on an ultimatum.
The speaker of Iran's parliament said late in the day that the US had violated some terms of the agreement.

The TACO trade is alive and well.

Stocks surged during Wednesday's trading session and US oil prices dropped the most since 2020 as markets cheered the last-minute ceasefire between the US, Israel, and Iran late Tuesday. The Dow gained over 1,300 points, and the S&P 500 and the Nasdaq Composite each rose nearly 3%.

About 90 minutes before the 8 p.m. ET Tuesday deadline set by Donald Trump for a deal with Iran, the president announced a two-week ceasefire.

Brent crude futures slumped as much as 16%, while WTI oil plummeted as much as 19%. Both Brent and WTI oil ended on Wednesday at around $96 a barrel.

Oil pared deeper losses and stocks gave back some gains after Fars News, an Iranian media outlet, reported that Iran had halted oil tanker passage through the Strait of Hormuz following Israeli attacks on Lebanon after the ceasefire agreement.

Later, Mohammad Bagher Ghalibaf, the speaker of Iran's parliament, said that the ceasefire agreement had been violated.

"Now, the very "workable basis on which to negotiate" has been openly and clearly violated, even before the negotiations began. In such situation, a bilateral ceasefire or negotiations is unreasonable," the Iranian leader said in statement released Wednesday afternoon.

Bagher Ghalibaf caught Wall Street's attention earlier in the conflict when he told traders to use Trump's de-escalation posts as a reverse indicator.

Here's where major indexes stood at 4:00 p.m. ET closing bell:

S&P 500: 6,776.59, up 2.41%

Dow Jones Industrial Average: 47,911.09, up 2.85% (1,326.63 points)

Nasdaq Composite: 24,853.87, up 2.69%

Bond yields dropped as investors recalibrated the outlook for inflation. The 10-year Treasury yield fell 6 basis points to 4.28%. Yields spiked during the war, driven by expectations that interest rates would remain high to offset rising prices.

And with that, the now-famous "Trump Always Chickens Out" trope has come to fruition yet again. Investors were waiting for it, and ready to take profits on oil.

To the market's credit, it didn't fall for Trump's fiery threat on Tuesday that "a whole civilization will die tonight" — the S&P 500 and Nasdaq actually finished positive in regular-hours trading. After more than a few TACO instances, traders are getting wise to Trump's push-and-pull routine.

On Wednesday morning, Trump followed up on news of the ceasefire by posting on Truth Social that the US would "work closely" with Iran, and had agreed to many points of a 15-point peace plan. He added that the US would discuss relieving the tariffs and sanctions it has placed on Iran. A 50% tariff would be imposed on any country supplying Iran with weapons, he said in a second post.

The de-escalation is welcome news for an S&P 500 that finished Tuesday down 5% from recent highs. Brent crude, meanwhile, is still 50% above where it was before the Iran war started.

The sentiment shift is enough to boost markets even as uncertainty remains about the durability of the ceasefire and the logistics of reopening the Strait of Hormuz.

"Even though there is still uncertainty over how durable this ceasefire is, stocks can still move higher even without all of the details ironed out. Just the scent of thawing tensions is enough for forward-looking stocks to keep climbing the wall of worry," Robert Edwards, chief investment officer at Edwards Asset Management, said.

Here's a rundown of other major moves in global markets on Wednesday:

Germany's DAX: +5%
Euro Stoxx 50: +5.2%
Britain's FTSE 100: +3.1%
Japan's Nikkei 225: +5.4%
Hong Kong's Hang Seng: +3.1%
China's Shanghai Composite: +2.7%

"Investors' wish for a ceasefire has been granted, triggering a rally across financial markets and pulling down the oil price," Dan Coatsworth, head of markets at AJ Bell, said in a morning note.

"Make no mistake — this is a pause in the proceedings and not a full resolution," he continued. "That means any market rebound could quickly lose momentum unless there is clear progress with US and Iran talks."

Those lingering concerns didn't stop traders from paring their bets on near-term rate hikes to counter inflation. The yield on Germany's 10-year government bond plunged by more than 18 basis points to 2.9% in early trading.

Several benchmark energy prices fell, but remained well above their pre-war levels. Wholesale gasoline futures for May (RBOB) tumbled 10% to $2.97 a gallon, but they cost less than $2 in late February. Dutch TTF natural gas futures for May fell 15% to 45 euros per megawatt-hour, but they traded around 32 euros in late February.

Michael Wan, a senior currency analyst at MUFG, cautioned that securing a durable deal could be difficult given that Iran's demands "seem hard for different parties, including Israel and the Gulf states, to accept."

"As such, we think any agreement on paper will likely be an extremely unstable equilibrium, and we think further meaningful bouts of volatility are more likely than not moving forward," Wan wrote in a Wednesday note.

He added that key questions remain over what concessions Iran might offer in return and that even in the event of a breakthrough, energy markets may not stabilize immediately.

While market participants may welcome ships resuming transit through the Strait of Hormuz, the key question is "which ships will be going back IN to take fresh cargoes back out," June Goh, a senior oil market analyst at Sparta Commodities, wrote in a post on X.

A two-week ceasefire is likely too short to establish a sustained rebound in inbound traffic, she added.

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