Are US-Iran Negotiations Real or Fake? Wall Street Has at Least Received Clear Signals

Author: He Hao, Wall Street Insights

On Monday, just minutes after Trump announced on Truth Social that he was abandoning plans to bomb Iran’s energy infrastructure, oil prices plummeted 14%, U.S. Treasury yields dropped sharply, and U.S. stocks surged before the market opened.

(Brent crude futures once fell 14%)

Although less than an hour later, Iran denied Trump’s claims of ongoing negotiations, this did not reverse the overall market trend for Monday.

Analysts point out that the reason for this market behavior is very clear: at least Trump himself is eager to end this war, which he initiated over three weeks ago and has pushed the global economy to the brink of crisis.

Some analysts say that if the issue cannot be resolved within the next 7 to 10 days, we may see a global economic shutdown similar to during the pandemic. Today’s statements suggest that Trump realizes the real economy may face a “cliff-like decline.”

Trump’s actions triggered a fierce rebound lasting about five minutes, marking one of Wall Street’s most volatile trading days since the U.S. and Iran went to war. This scene also recalls last April, when Trump launched tariffs against “America versus the world,” pushing global financial markets to the edge before quickly shifting course.

Media citing insiders say that, similar to then, Trump’s recent statements are partly aimed at reassuring anxious investors unsettled by market turbulence, to prevent a new round of sharp sell-offs at the start of the week.

After the U.S. stock market opened on Monday, the S&P 500 rose as much as 2.2%, the largest gain since May, the two-year U.S. Treasury yield plunged 22 basis points from its high to 3.79%, Brent crude oil fell below $100 per barrel, the dollar weakened, and European equities and bonds turned from decline to gains and closed higher.

However, beneath the surface, markets remain skeptical about whether Trump can easily end the conflict. As this sentiment spreads, early gains across various assets gradually eroded. Investors generally suspect that Trump’s Monday statements are more about short-term market stabilization. By the close, the S&P 500’s gains had narrowed to about 1.2%, and the rally in U.S. bonds also slowed.

(Comparison of intraday movements in U.S. stocks, bonds, and oil)

This market trend also highlights that mere verbal reassurance is insufficient to convince investors who are already preparing for long-term Middle East instability. Some worry that this situation is no longer entirely under Trump’s control, unlike tariffs that could be halted at any time. Those who feel reassured by his market-sensitive reactions may be mistaken.

In Trump’s first year back in the White House, traders gradually formed an expectation: if policies cause a market crash, he tends to quickly pivot. This phenomenon is known as the “TACO trade” (Trump Always Cowers Off), which also fosters a “buy the dip” mentality—whether it’s threats of trade wars, proposals to take over Greenland, or criticisms of the Federal Reserve.

But the Iran conflict has weakened this belief. Over the past few weeks, the escalation has continued: Trump sometimes claims victory is near, at other times criticizes allies for not supporting him; Iran remains firm, blocking the Strait of Hormuz and cutting off a critical global energy supply.

The impact of Middle East tensions became more evident last week. Rising energy prices have added new inflationary pressures, prompting traders to bet that global central banks will be forced to raise interest rates further. This has intensified the risk of stagflation—weak growth combined with rising inflation—and caused over $2.5 trillion in global bond market value to evaporate, possibly marking the largest monthly decline in over three years.

This also underscores that the war is affecting other policy goals of the Trump administration—including lowering mortgage rates, reducing oil prices, and projecting a strong U.S. economy ahead of the midterm elections.

Although Trump has repeatedly criticized Fed Chair Powell for not cutting rates, as of last Friday, the two-year Treasury yield has risen more than 0.5 percentage points since the Iran conflict began, reflecting market concerns about inflation constraining policy space.

Some analysts suggest that while Trump is clearly trying to suppress oil prices, perhaps once again, it is the bond market that is forcing him to make concessions.

After last Friday’s stock decline and the S&P 500’s longest weekly losing streak in a year, Trump posted on social media that he is “very close” to achieving his goals and is considering reducing military operations in the Middle East.

He then threatened that if Iran does not reopen the Strait of Hormuz within 48 hours, he will attack its power facilities. But by Monday, he announced a five-day pause and claimed progress in negotiations—an assertion Iran denied.

Many see Trump’s repeated stance shifts and inaccurate statements as undermining his credibility in financial markets, severely disrupting market positioning. Some analysts state:

The hardest thing to predict isn’t the war itself, but the White House’s communication style and how markets will react. Markets can’t tell whether this is a credible sign that the conflict is nearing an end or just another nearly-fulfilled claim.

The truth depends on perception, and Trump’s capriciousness adds uncertainty on top of uncertainty, limiting the ability of confident bears to push markets lower further. This back-and-forth is buying the market time while also restraining overconfidence—good or bad.