US President Donald Trump during a prime-time address to the nation in the Cross Hall of the White House in Washington, DC, US, on Wednesday, April 1, 2026.
Alex Brandon | Bloomberg | Getty Images
Investors are caught between positioning for a swift deal that ends the war and a significant escalation that could send oil prices and bond yields soaring further as they start a holiday-thinned trading week.
President Donald Trump issued a profanity-laden ultimatum on Sunday, warning Iran it would be “living in Hell” if the Strait of Hormuz isn’t reopened by Tuesday, 8 p.m. ET, declaring it “Power Plant Day, and Bridge Day, all wrapped up in one.”
Separately, in an interview with Fox News on Sunday, Trump said he was hopeful that there was a “good chance” for a deal to be reached by Monday.
Conflicting signals have set up a week in which investors are forced to position for starkly divergent outcomes.
Meanwhile, Iran has rejected Trump’s latest threats, saying that the critical waterway would only reopen fully after Tehran is compensated for the damage from the war, as it continued strikes across the Gulf over the weekend, including Kuwait’s oil headquarters.
“Markets are on edge, as time is running out and the outcomes are binary — truce or escalation,” said Rob Subbaraman, head of global macro research at Nomura. Trump’s tone nonetheless suggested a degree of urgency in the White House to bring the war to an end, Subbaraman said, as investors continued their positioning to “hedge the escalation risk.”
Trump has been vacillating between hailing talks with Iran as productive with a peace deal imminent, and warning that he’s prepared to intensify military action against the Islamic Republic. He has repeatedly extended the deadline for Iran to reopen the Strait of Hormuz.
Mixed messaging has led to market volatility accompanied by choppy oil trading. The S&P 500 gained 3.4% last week, logging its best weekly gains since November as investors bought the dip on hopes of a diplomatic resolution. The Cboe Volatility Index surged from below 20 before the war to around 24 last week.
“Trump’s escalatory tone [over the weekend] is very much in line with his playbook: headline-driven, unpredictable, and designed to apply maximum pressure quickly,” said Mohit Mirpuri, an equity fund manager at SGMC Capital.
“Markets will need to get used to this style of policymaking for the foreseeable future while he’s in office,” Mirpuri added.
Stagflation risks loom
The month-long war and the effective blockade of the Strait of Hormuz threaten to plunge the world into one of its most severe energy crises in history. And even a diplomatic breakthrough might not bring a quick relief to markets, analysts said.
Brent crude prices surged to $109.77 per barrel on Monday, about 50% higher since the war broke out on Feb. 28. U.S. West Texas Intermediate has soared 66% and was trading at $111.2 as of 11 p.m. ET.
Despite a modest uptick in recent days, shipping traffic through the Strait of Hormuz — through which nearly a fourth of the world’s seaborne oil and a fifth its liquefied natural gas transited before the war — remained 95% lower than the pre-war levels.
“Even in a scenario where the Strait of Hormuz remains open, the damage to confidence and supply chains is already done — things don’t just snap back to normal,” Mirpuri said. “Markets will likely remain headline-sensitive, with sharp swings both ways as narratives shift.”
The OPEC+ decision on Sunday to raise production quotas by 206,000 barrels per day for May would barely help shore up oil supplies, as the war has constrained production and shipments from some of the world’s largest crude producers.
The war has “lasted long enough for there to be serious inflation spikes around the world,” Subbaraman said, warning that “if the war escalates from here, the inflation shock could soon escalate into a growth shock, with demand destruction and outright stagflation.”
Bond yields: underestimated risk
The fixed-income market is quietly repricing the inflation outlook. The 10-year Treasury yield climbed to 4.362% Monday, up from 3.962% before the conflict started, hovering near the highest levels since mid-2025, as investors pared back expectations for interest rate cuts by the Federal Reserve this year.
“One of the bigger risks that’s underappreciated is the move in government bond yields,” said Mirpuri. “If this geopolitical shock feeds into sustained inflation expectations, yields could move higher again, tightening financial conditions at a time when markets are already fragile.”
Wall Street strategist Ed Yardeni said that the fixed-income markets have been repricing government notes to reflect the rapidly deteriorating outlook for inflation, with “bond vigilantes taking matters into their own hands and tightening credit conditions.”
“Now we can’t rule out a bear market and even a recession. It all depends on how long the strait will be closed,” Yardeni warned, deepening economic pains from the disruption in global energy flows.
Headlines-driven volatility
As investors hold their breath ahead of Tuesday’s deadline, markets are expected to remain highly volatile as they try to assess every signal from Washington and Tehran.
Japan and Korea markets rose Monday as Axios reported that the U.S., Iran and a group of regional mediators were discussing terms for a potential 45-day ceasefire that could lead to a permanent end to the war, although the report said the chances for reaching a partial deal before the deadline were slim. Indian benchmark indexes were trading lower.
“We are [now in] an event-driven market where headline risk dominates intraday moves, and positioning needs to account for binary outcomes,” said Hiroki Shimazu, chief strategist at MCP Asset Management.
He expects both sides to gravitate toward a de-escalation brokered by Oman in the form of “a quiet reduction in strike tempo,” rather than a decisive resolution. “We are in a protracted stalemate phase rather than approaching a clean resolution,” said Shimazu, expecting a prolonged period of volatility in the weeks ahead.
Investors also await a spate of key economic data out of the U.S. this week. The February personal consumption expenditures index — the Fed’s preferred inflation gauge — is due Thursday and will offer an early read on whether the oil shock is feeding through to prices in the world’s largest economy.
Spot gold, which has depreciated about 12% since the war began to $4,672.03 per ounce, also faces a tug of war between safe-haven demand and geopolitical headwinds from a stronger dollar and rising Treasury yields. A strengthening dollar has made the greenback-priced bullion less affordable for other currency holders, while higher yields have eroded the non-yielding metal’s appeal.
“Near-term uncertainty is clearly very high, and for most investors, it is just wait and watch at this stage,” said Chetan Seth, APAC equity strategist at Nomura.
