Why are Stocks Surging After the U.S.-Iran Ceasefire?

The markets staged a major relief rally last week on the heels of a two-week ceasefire between the U.S. and Iran, and while the optimism is broad, there is a focus. Tech and Industrials posted gains of almost 5% while Small Caps were up 4% last week, with investors piling into nearly everything except energy stocks.

The enthusiasm isn't rooted in confidence that lasting peace is coming. As J.P. Morgan's Chief Economist noted, few believe the Middle East is suddenly stable or that the U.S. is in a meaningfully better position than it was a few months ago.

So what's really driving it? Well, with the ceasefire comes reduced fears of energy-driven inflation, and with cheaper oil comes better odds of Fed rate cuts. Markets are now pricing in a nearly 30% chance of a 25-basis-point cut by December, more than double the 14% odds seen just a day earlier.

Earnings season is adding more fuel to the rally. Semiconductor firm Aehr Test Systems (AEHR) surged 35% despite missing revenue estimates. Investors rewarded the company’s pivot into testing high-power AI processors and silicon photonics transceivers. This technology is key in the latest AI Supercycle that has just emerged.

Clothing company Levi Strauss (LEVI) jumped 15% on strong earnings, while Delta Airlines (DAL) posted record quarterly revenues.

These early results set an encouraging tone heading into next week, when major banks, including JPMorgan (JPM) and Citigroup (C) — both up over 6% heading into their reports — take center stage.

In short, Wall Street isn't betting on peace. It's betting on cheaper energy keeping the Fed's hand light, and on a strong earnings season. These make the bull case even harder to ignore.

For those who’d like to be alerted to the best opportunities in the current markets, use this link here for a no-cost trial of my twice-weekly MEM Edge Report. Our subscribers are participating in the new Super Cycle that’s taking place in AI, and you won’t want to miss it! Furthermore, you’ll also be kept up to date on broader market conditions and moves below the market’s surface, all critical for success in today’s market environment.

Warmly,
Mary Ellen McGonagle
MEM Investment Research