EGU
Principled Wealth Management, Practical Business Advisory, Precise Accounting and Taxation
CANVA EAT 35.jpg

Insights

Insights

When markets rally on hope: what the Iran ceasefire tells us about portfolio discipline

On 7 April 2026, a two-week ceasefire between the United States and Iran was announced. The S&P 500 gained 4.5% in the week that followed. The Nasdaq posted its thirteenth consecutive winning session — a streak not seen since 1992. Markets, which had been pricing the worst, rapidly began pricing a resolution.

Then, on 21 April, the Strait of Hormuz closed again. Equity markets reversed.

This sequence is worth examining carefully — not because it was unpredictable, but because it was entirely predictable in structure, even if not in timing. And it illuminates something important about how we think about portfolio construction at EGU.

The anatomy of a geopolitical rally

When a ceasefire is announced in a conflict that has materially disrupted global energy markets, three things tend to happen in rapid succession. First, investors who had built short positions against equities and long positions in oil cover those trades quickly, producing sharp moves in both directions. Second, headline-driven retail and institutional investors buy the news. Third, analysts begin to note that the conditions underlying the conflict — in this case, the Strait of Hormuz closure, the damage to Gulf energy infrastructure, and the absence of any agreement on Iran's nuclear capabilities — have not materially changed.

The ceasefire rally in April followed this pattern precisely. Significant short-covering drove the initial move. BCA Research noted at the time that investors risk being "complacent" by treating a temporary ceasefire as a fundamental resolution. Deutsche Bank drew an explicit parallel with the early weeks of the Ukraine conflict in 2022, when the S&P 500 rallied more than 10% on optimism over a negotiated settlement — before falling approximately 25% from its January peak to its October trough.

That comparison is not offered as a prediction. It is offered as a reminder that the gap between a ceasefire and a resolution is wide, and that markets have historically struggled to price that gap correctly in real time.

What this means for how we invest

We do not position portfolios around geopolitical forecasts. The reason is straightforward: geopolitical events are among the least predictable inputs in financial markets, and the investors who attempt to trade them systematically — getting out before a conflict escalates, rotating into energy before a disruption, buying equities before a ceasefire holds — face near-impossible odds. The evidence on the returns from this kind of activity is not encouraging.

What we do instead is construct portfolios that are designed to perform across a range of outcomes, including outcomes that are difficult to anticipate. The April ceasefire rally is a case in point. A portfolio with genuine diversification across asset classes — equities, fixed income, real assets, and commodities — would have participated in the equity recovery while the commodity and energy holdings that provided ballast through the initial disruption moderated the drawdown on the way down. The portfolio would not have captured the full rally, nor would it have absorbed the full decline. That is the point.

The investors most damaged by the events of the past three months are those at two extremes: those who moved heavily into cash or short positions when the conflict began and missed the recovery, and those who rotated aggressively into equities on the ceasefire announcement and held through the reversal. Both groups made the same error — positioning around a prediction rather than a construction discipline.

The current environment

As of the beginning of May, the Strait of Hormuz remains effectively closed to commercial traffic. Energy infrastructure damage across the Gulf region is estimated at $25 billion and will take months to repair even under optimistic assumptions. Annual inflation in Australia has risen to 4.6%, driven in significant part by fuel prices that surged 33% in March alone. Global growth forecasts have been revised downward by the IMF.

These conditions are not resolved by a ceasefire that did not hold. They may be resolved over time — by a negotiated settlement with substance, by rerouting of energy supply chains, by the gradual repair of damaged infrastructure. We are watching all of these developments closely and incorporating them into our ongoing assessment of portfolio positioning.

What we are not doing is making wholesale changes in response to each headline. The portfolios we manage are built for the full cycle, not the current fortnight.

If you would like to discuss how your portfolio is positioned in this environment, we welcome the conversation.

Ben Wieland
Partner, Wealth Manager

1300 102 542 | 0423 710 820
ben@egu.au

Sources

This is general advice. It does not take account of your objectives, financial situation, or needs, and is not a substitute for advice that does. Before acting on anything in it, consider whether it suits your circumstances, and consider the relevant Product Disclosure Statement.

Ben Wieland