This week, the United States and Iran appear to be at odds over the possibility of a peace deal, with Washington touting diplomatic progress and Tehran denying interest in direct talks, leaving investors to analyze the prospect of an end to the deal and wonder how to trade amid conflicting signals. Markets rallied earlier this week after President Donald Trump said the United States and Iran were “currently negotiating” and hinted at the possibility of a peace deal, despite Iranian government denials. The comments caused oil prices to plummet and stock prices to rise, highlighting investors’ sensitivity to gradual changes in tone. But the whiplash reflects deeper uncertainty about whether the conflict is nearing a resolution or risks escalating into broader disruption to global energy supplies. “The market is struggling because it’s trying to price two competing paths at the same time,” said Billy Leung, investment strategist at Global XETF. “Potential diplomatic outcomes are being discussed, but the base scenario still includes short-term disruption of energy flows, particularly through the Strait of Hormuz.” Greenland was a sideshow. Venezuela was a sideshow. Cuba is a sideshow. Ed Yardeni, President, Yardeni Research This tension has kept risk pricing volatile, with assets reacting to headlines rather than converging to a clear macro trajectory. Oil, bond yields and stocks have been volatile as energy shocks, inflation and shifting expectations about central bank policy ripple through markets. Earlier this week, the United States reportedly laid out more than a dozen proposals to halt hostilities against Iran and suggest a possible ceasefire to restart negotiations. However, Iranian officials dismissed the report as “fake news”. It remains unclear whether the Trump administration is seeking to end the war or avoid further escalation, and whether the proposal has Israeli support. The Wall Street Journal reported Wednesday that President Trump wants to end the conflict in the coming weeks, citing people familiar with the matter. All three major indexes rebounded on Wednesday, while oil prices fell slightly, warning of premature optimism. Marco Papik, geomacro strategist at BCA Research, said talks “may or may not happen” because the gap between US and Iranian demands, particularly over sovereignty over the Strait of Hormuz, remains wide. However, he added that markets are reacting as if some diplomatic move is afoot, even though military activity continues. The Pentagon is expected to send thousands of troops to the Middle East, which could significantly increase the risk of conflict. Ben Emmons, founder of FedWatch Advisors, said the market currently has “moderate confidence” in the prospects for a peace deal, but with the caveat that any deal would be in effect for 30 days. Israel remains a wild card in maintaining the ceasefire, as a surprise attack could quickly escalate the situation. “Grin and bear it” Investor sensitivity to conflicting messages also reflects fragile market conditions, where low liquidity and weak positioning amplify reactions to geopolitical developments, Leon said. For other investors, the strategy is simple. It’s about withstanding volatility. “We’ll just have to grin and bear it,” said Ed Yardeni, president of Yardeni Research. “Geopolitical crises in the past have almost always been buying opportunities.” Yardeni said the risk of the current conflict is far greater than past geopolitical flare-ups that failed to meaningfully move markets. Markets have largely ignored developments in Venezuela and Greenland in early 2026 because by that point investors had become desensitized to headline risks under the Trump administration. “Greenland was a sideshow. Venezuela was a sideshow. Cuba was a sideshow,” Yardeni said. “These are not the types of conflicts that have a significant impact not just on the U.S. economy, but on the global economy.[The Iran war]couldn’t be any bigger.” He added that investors with cash could position themselves for a faster resolution by buying sectors that benefit from lower oil prices and less uncertainty. “That means buying stock in airlines, for example, and that means buying homebuilding companies,” Yardeni said. “If you make a lot of money in energy stocks, you’re going to prioritize yourself.”Trading on headlines UBS strategists cautioned against trading on geopolitical headlines, noting that markets are forward-looking and often react to a situation “getting worse” rather than completely resolved. “Investors should not attempt geopolitical transactions and should maintain strategic shareholdings,” the bank said. Instead, UBS recommends taking advantage of the market rebound to rebalance portfolios, reducing exposure to regions and sectors most vulnerable to rising energy prices, while adding defensive assets and short-term bonds. Gautam Chaddha, executive director at RBC Wealth Management, said that for some, the volatility across multiple asset classes presents an opportunity to rebalance their portfolios by taking profit or buying high-quality assets “to hold for the long term.” “What we have tried to do is position the portfolio towards the winners, the companies that will benefit from the disruption in the region,” Chadha said, highlighting fertilizer producers, defense manufacturing and helium suppliers as potential beneficiaries. Robin Brooks, a senior fellow at the Brookings Institution, said markets may ultimately care more about the economic impact of conflict than politics. “[Even]if military tensions increase, which will ultimately result in increased tanker traffic, the market will be excited,” Brooks said. “As bad as it sounds, oil prices will fall, global stock markets will rise, and we will be back in business.” But one thing is clear: That said, investors face a bumpy road ahead until there are clear signs of an exit. A breakdown in negotiations or further attacks on energy infrastructure could quickly reverse recent gains and reignite volatility. “The longer this goes on, the more we are moving from the realm of simple price shocks to the realm of actual physical scarcity,” Brooks said, noting that the economy is experiencing sustained economic growth for the first time in decades. —CNBC’s Chloe Taylor contributed to this report.
