The Iran Ceasefire Rally Is On! But Investors Aren’t Responding In the Right Way

Add a new term to your vocabulary: The Iran Ceasefire Rally. The rally on the ASX yesterday, that saw our bourse rise over 2.5% in its best day in several months, occured amidst a 2 week suspension of hostilities in Iran. And the ASX was not alone with Asian markets and North American futures rallying, as did gold, while oil fell.

Clearly, investors are relieved, but are they complacent? To any whose first instinct is to buy everything that was beaten down and dump every barrel of crude exposure you own, we respectfully say they are and would ask any considering joining them to sit down for a moment.

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The reality about the Iran ceasefire rally

The Iran ceasefire rally is not because the war is over, it is because there is a two-week pause. Iran wants sanctions lifted, infrastructure rebuilt, and a definitive end to hostilities. The U.S. wants a permanently open Strait and nuclear concessions. These positions are not two weeks apart – anyone who thinks otherwise is kidding themselves. The probability that this ceasefire either collapses or is renewed in a rolling, ambiguous fashion through mid-2026 is materially higher than the probability of a durable peace deal. And who knows just how much oil will get through the Strait in two weeks?

We know that roughly 20% of global daily oil supply transits that channel in ordinary times, and it certainly was a lot lower for the last few weeks. Ships have been struck by drones. Tanker crews are not going to steam confidently back through a waterway that Iran has reserved the right to “coordinate” – language in the foreign minister’s statement that should alarm anyone who reads it carefully.

The structural damage does not pause with the bombs

Even in the optimistic scenario of a genuine, lasting peace, the investor who prices risk correctly must account for the lag. Supply chains do not heal on a news cycle. Insurance rates on shipping through the Persian Gulf, which surged to levels not seen since the 1980s tanker wars, will take months to normalise.

Shipping capacity that was rerouted around the Cape of Good Hope adds 10–14 days to voyage times; those reroutes do not unwind overnight. Refinery throughput across Asia that was throttled by feedstock shortages will take a quarter or more to recover. And manufacturers from Germany to South Korea who began emergency inventory draws are now rebuilding stockpiles — a process that sustains input demand and price pressure even as the headlines soften.

This is the inflationary residue of a supply shock, and it is durable. WTI crude is still up more than 70% since January 1, even after Tuesday’s dramatic drop. Gasoline, diesel, jet fuel, and petrochemical feedstocks have all repriced in ways that will take time to flow out of CPI baskets. Fixed-income markets are already reading this correctly: Treasury yields rose in Tuesday’s session as traders priced rate cuts back out, an unusual divergence from the equity relief rally that should not be dismissed.

A lower oil price today does not reverse the inflation that six weeks of a 47% crude surge has already embedded in the pipeline. Goods inflation, freight costs, and energy-linked input costs run on a 90–180 day lag. The Fed knows this. You should price it too.

What the rally actually tells you

Markets were not pricing in full-scale escalation; rather, they were pricing in prolonged uncertainty. The relief rally is a volatility premium unwinding, not a fundamental rerating of earnings. Multiples that compressed under war-premium conditions will partially re-expand, but the underlying earnings estimates for Q2 and Q3 have not moved.

They are still contaminated by energy costs, freight disruptions, and softening consumer demand in the economies most exposed to the conflict premium: Europe, South Korea, Japan, and India. The MSCI EM index’s 4.3% jump on Wednesday is a positioning unwind, not a growth upgrade.

If you chase the broad rally such as by buying beaten-down cyclicals, airlines, consumer discretionary, or semiconductors simply because they fell during the conflict; then you are making a bet that the peace holds, that oil stays down, and that the inflationary backlog clears quickly. That is three conditional bets stacked on top of each other, any one of which failing sends you back to where you started, or worse.

Where the real opportunity sits

The better framework is to ask: what sectors or stocks perform well whether the ceasefire holds or not? What is cheap relative to the structural reality of a post-conflict inflationary environment, regardless of whether Trump and Tehran reach a deal in two weeks or two years? That narrows the opportunity set considerably and more usefully.

So perhaps gold and by extension gold ETFs and gold miners. With the threat of stagflation, gold’s bull case looks excellent and intact under almost any scenario barring Iran’s regime falling. Of course not all gold miners are created equal, be sure to look at each company’s projects, their operational leverage and hedging exposure (if any).

Defence stocks could be a good bet too, unless they have a CEO who sold tens of millions in shares and then walked out the door. The thematic of substantial defence investment is not going anywhere.

What to treat with extreme caution

Airlines are amongst the strongest rallying sectors, particularly Qantas (ASX:QAN), but airlines are the most dangerous ceasefire trade. Yes, jet fuel is down sharply today. But the forward curve is still elevated, consumer confidence is fragile across Europe and Asia, and if the Strait re-closes in two weeks, airlines will be in a worse position than before, having given back yield and not hedged adequately. Delta’s jump this morning tells you what the market wants to believe, not what the fundamentals support.

On energy: do not dump oil majors entirely. The giants like Woodside carry structural advantages (such as diversified production, balance sheet strength, and a dividend floor) that mean a permanent oil price decline, which is not what this is, would be needed to impair them materially. Trim the conflict premium, not the position.

An honest two-scenario framework

Investors need to consider multiple scenarios, not just what they want to happen. And what they want to happen will be what is best for their portfolio, which will be an immediate world peace in the next two weeks. We’d all like that…but we need to be realistic. Let’s explore 2 realistic scenarios.

In scenario 1, the ceasefire holds and a genuine deal is negotiated over the next 60–90 days. In this case, oil gradually normalises, but not quickly, and not to pre-war levels. Inflation remains sticky for two quarters. The Fed holds or cuts cautiously. Growth equities re-rate modestly higher. Gold consolidates but does not collapse. Defence companies correct 5–10% from recent highs but maintain long-term backlog-driven earnings. The winning trade is quality compounders, not high-beta cyclicals.

In Scenario 2: the ceasefire expires or collapses, meaning that the Strait closes again, oil surges through $120 toward $140 and equity markets revisit March lows or worse. In this scenario, gold, defence, and cash are what you want — and those are precisely the things the market is selling today in the relief rally. Which means today’s sellers are offering you a rebuy opportunity in the assets you most want to hold if the worst case resumes.

Conclusion

The best thing about the Iran ceasefire rally is that it gives you an exit from positions you should not have owned through a war, and an entry into positions that work in both scenarios. Use it for that. Do not let it convince you the risk is over.