Expect More Big Stock Market Moves

What happens next with the stock market really depends on whether cooler heads will prevail, or more buildup occurs.

SPY ETF: S&P 500

Trump is desperate for an off-ramp to the war he started. His biggest political pokes are coming from the stock market drilling for new year-to-date lows and the price of gasoline at the pump—printing $4.25 per gallon nationwide. This does not play out well for someone who specifically campaigned on lowering gas prices on day 1, while also assuring voters he would not start any new wars.

Given these negative barometers, I would think the administration is working overtime to come to some resolution and get out of this as quickly as possible. The thing is, Trump is claiming they are in negotiations with Iran—everyone in Iran is denying talks are even occurring. While I can see the need for ending everything, one would have to question if there is a pathway to even getting to the negotiating table.

At some point in the future, deals will be made. When? Anyone’s guess seeing that truthfully, it does not appear there are even official talks occurring. Still, at some point, this will end—there’s likely more pressure on Trump than Iran.

In the meantime, it is also possible that more damage will occur prior to any resolution, but that eventually, a deal will be put into place and the Straight of Hormuz will reopen to normal traffic—this is my ultimate stand on this.

Something to note, while there will be an end to this, it will take a considerable amount of time before damaged infrastructure is repaired—think years, not days nor weeks. While the Straight sees some 20% of world flow of oil moving through it via tankers, the possibility of getting all of the equipment back on line in a meaningfully short period of time is low considering the damage sustained by some of the Gulf state producers. Where does the supply demanded from that portion of the world come from?

I expect that the price of oil will fall, but I do not expect the price of oil to get to the low price levels seen just prior to the conflict. I also expect that producers around the world will step up production rapidly to take advantage of the price distortion because of the loss of supply from that portion of the world–that will be short lived.

Eventually, I expect the price to move downward to a more balanced price at a likely new equilibrium level. This, also, is my stand on the price of oil.

Interest Rates

US10-Year Treasury Yield

Interest rates are leaning more toward heading higher than lower. First, there are price pressures that continue to move upward, remaining sticky to the point that the Federal Reserve may begin talking up interest rates again. While this is transpiring, there is now a world-wide oil supply shock that has sent gas prices upward. The eventuality is that this will make its way throughout the entire world economy. That will continue to pressure the Fed to move interest rates upward. The oil price shock will take some months to begin working into the overall economy. This will add more pressure to the already-increasing price pressures seen in the latest economic data.

Energy Sector

XLE ETF: Energy Sector

While the price of oil has skyrocketed up nearly 100% in a very short period of time, keep in mind that US producers have seen absolutely zero loss of capacity. One day, these producers were selling a barrel of oil at a mere $65, then almost instantly, the price was nearly $130. That is all pure profit, if you think about it. There are almost zero changes to input costs, yet the price tag has nearly doubled.

Because of this alone, oil producers have seen their stock prices shoot higher. Beyond this immediacy of the supply shock and price jump, these producers are likely ramping up production in any way possible to get as much product into the market as possible. That additional supply will pressure oil prices lower, which in turn eventually would pressure these stocks back downward.

Then the real war begins: Supply & Price. Think through what could happen if enough worldwide producers started increasing supply by 10%, or 20%, or more? This will make up for what is being lost from not being able to move through the Straight. Then, what happens once the Straight is opened back up, and those Gulf State operators start adding back their supply potential into the market? There will be even further price pressures on a barrel of oil, and a new equilibrium price level will need to be discovered.

AI Prediction

I’m currently out of any positions. I had attempted a few theta trades through the week. My expectations were, wrongly, that all of the talk of deescalation were legit, and I had wanted to sell vertical puts with the idea that cooler heads would prevail, an off ramp would be found, and markets would rally back. Fortunately, none of my trades hit as the market moved lower.

I am looking to get back in, but I am very likely to buy both calls & puts on a 1-month spread with the expectation that something will occur, and the markets will move—there’s no telling what may happen, whether it be good news or more bad news.

The Query

The war with Iran continues. There have been hints of a potential end from both side, and yet there is still escalation going on from the United sates as well as additional attacks by Iran. While stocks have rebounded on these hopes, I am not too certain.

First, damage sustained by many of the Gulf States will take months and up to years to get back online. What analysis can you come up with regarding the overall damage, and how long this will take to repair.

Next, the Straight itself is still locked down, and this will continue to be the case for some time. While the Straight may open soon, there are also mines that will need to be removed as well as the overall backlog taking time to work its way through.

Eventually, normalcy may get reestablished, but again, I expect this to take a long time. Then there are US producers that could bring offline rigs back online to take advantage of prices being as high as they are. While these elevated prices will be enticing, how long until enough supply hits the market to bring prices down meaningfully?

For now, energy prices have driven energy stocks up significantly, and I would be interested in better understanding how future price action may play out with this sector.

Given the elevated price levels, what is the general consensus for the world’s economies as well as the United States?

The Response

Short version

If the reported damage is broadly accurate, this is not a “headline spike that disappears when a ceasefire headline prints.” It looks more like:

1. Immediate war premium

2. Followed by a real physical supply deficit

3. Then a long repair / rerouting / insurance normalization phase

That means even if the war politically starts winding down, energy markets may stay tight for much longer than equity traders initially expect.

1) Damage analysis: how bad and how long to repair?

Recent reporting and summaries point to a fairly severe disruption profile:

• Reuters’ Hormuz/oil graphic frames the chokepoint exposure at roughly 20% of global oil and significant LNG flow exposure through the Strait (Reuters).

• Multiple reports describe widespread strikes on Gulf energy infrastructure, including refineries, LNG facilities, ports, and associated export capacity, with some analyses citing dozens of affected sites and repair costs in the tens of billions (Kansas Reflector, JPT/SPE, Financial Post).

• Some reporting highlights especially long timelines for major LNG and complex processing assets, where restoration can take years, not months, due to specialized equipment, supply-chain bottlenecks, and labor constraints (Financial Post, Yahoo News UK).

My read

You should think in tiers:

• Minor damage / fire / local systems: weeks to a few months

• Refinery / export terminal / port logistics: several months

• Large LNG trains, GTL plants, major integrated export assets: potentially 1–5 years

So the important conclusion is:

Even if missiles stop tomorrow, the energy system does not normalize tomorrow.

That is especially true for LNG and petrochemical chains, where restart risk, inspection, safety certification, and component sourcing are slow.

2) Strait of Hormuz reopening: “open” does not mean “normal”

You’re also right to separate:

• political reopening, from

• actual commercial normalization.

Reporting suggests mines, shipping risk, and backlog are all major issues:

• The Washington Institute notes that even limited mining can paralyze traffic and that mine-clearing is specialized, deliberate work (Washington Institute).

• Windward and others describe the traffic dislocation and persistent threat environment for shippers/insurers (Windward).

• Reports cite large vessel backlogs and ongoing reluctance from insurers and crews even after any formal reopening signal (Politico, Bloomberg).

My read

There are really 3 phases:

1. Military reopening

   • escorts, demining, surveillance

   • timeframe: possibly weeks

2. Commercial reopening

   • insurers return

   • crews accept routes

   • ports resume processing

   • timeframe: additional weeks to months

3. Normalization

   • backlog clears

   • schedules stabilize

   • freight rates fall

   • risk premium decays

   • timeframe: months

So even in a best-case ceasefire:

Oil could fall from panic highs, but still remain structurally elevated because the logistics chain remains impaired.

3) Can US producers fill the gap? Yes, but not quickly enough to “fix” this

Search results suggest US production is already near high levels, and while shale is flexible, the timeline for material incremental supply is still measured in months, not weeks (EnergyNow / Baker Hughes context, Raymond James post).

Important distinction

US shale can:

• add some supply relatively faster than conventional mega-projects

But it cannot:

• instantly replace a multi-million-barrel-per-day Gulf disruption,

• nor fully replace LNG / petrochemical / fertilizer bottlenecks.

My estimate framework

• Weeks: almost no meaningful new supply response

• 2–4 months: some incremental shale response, improved completion activity

• 6+ months: more visible response if prices stay high

• 12+ months: enough response to matter more materially, assuming capital discipline loosens

So yes, US producers have a quasi-monopoly/safe-haven advantage for now, but:

The market likely stays tight long enough for them to enjoy a period of outsized cash generation.

4) Oil price outlook from here

Based on the reporting, I’d think in scenarios:

Scenario A: ceasefire soon, Strait partially reopens

• Oil likely drops from panic highs

• But settles well above pre-war levels

• Why: damaged infrastructure + backlog + insurance premium

Scenario B: intermittent attacks continue

• Oil stays in a high, volatile plateau

• Every new strike reprices the upper tail

• Downside is limited because spare supply is not enough

Scenario C: prolonged disruption + more infrastructure damage

• Oil remains structurally very high

• Demand destruction becomes the balancing mechanism

• Recession probability rises sharply outside the US

So my bias is:

Even if diplomacy improves, oil probably does not quickly go “back to normal.”

5) Energy stocks: what future price action probably looks like

This is the key equity angle.

Reports indicate strong outperformance from:

• US integrated majors

• US shale / Permian names

• LNG exporters

• Some fertilizer / chemical-linked beneficiaries (MarketMinute/Financial Content, Chronicle Journal market summary).

How this likely plays out

There are usually two phases:

Phase 1: headline squeeze / repricing

• fast move up

• short covering

• multiple expansion

Phase 2: cash flow validation

• market asks whether elevated prices persist long enough to turn into:

  • higher free cash flow

  • dividend/buyback upside

  • reserve replacement / capex expansion

If oil stays elevated for months, not days:

• energy stocks can continue to outperform,

• though with sharp pullbacks on ceasefire headlines.

My take

• Integrated majors: probably the cleanest medium-term winners

• US shale: potentially strong, but more volatile

• LNG exporters: structurally interesting if global LNG tightness persists

• Refiners: more mixed, depends on feedstock/product spread dynamics

So:

The sector can remain strong even if oil stops rising, as long as oil stays high enough for earnings revisions to keep moving up.

6) General consensus for world economies and the US

The broad macro consensus from recent commentary appears to be:

• US: more resilient than most due to domestic production and shale flexibility

• Europe / Japan / much of Asia: more vulnerable due to import dependence

• Emerging markets: especially vulnerable via currencies, debt servicing, and imported inflation

UNCTAD and market commentary broadly frame a prolonged Hormuz disruption as a meaningful drag on global growth and an inflationary shock, with recession risk rising the longer it persists (UNCTAD, Stifel PDF).

My synthesis

For the world:

• growth down

• inflation up

• industrial margins squeezed

• central banks less able to ease

For the US:

• relatively insulated compared with importers

• but not immune:

  • gasoline / diesel pressure

  • manufacturing input costs

  • tighter financial conditions

  • slower consumer demand outside energy states/sectors

So the likely consensus path is:

not immediate global collapse, but a stagflationary drag
with the US holding up better than Europe/Asia, while energy producers materially outperform the rest of the market.

Bottom line

My base case is:

• Repairs: months for minor assets, years for major LNG/export infrastructure

• Strait normalization: much slower than any political headline suggests

• US supply response: helpful, but too slow to fully offset near-term shortages

• Oil: likely remains structurally elevated even if hostilities cool

• Energy stocks: still favored medium term, though headline-volatile

• World economy: weaker growth, higher inflation, more stress abroad than in the US

My Take

On the one hand, cheap talk states that there is a way out of this—I ma doubtful. Regardless, damage to infrastructure has already occurred, and it will take years to rebuild what was lost. In the meantime, I expect the market to move in one direction or another. What I think is more likely is a move to the down side. Not wanting to take on a position that could lose, I will put on one month vertical spreads, both puts and calls, and along with these positions, I will sell into these with shorter-dated spreads playing theta. Basically, I will put on bigger positions, then take smaller ones throughout the month against these bigger positions and bring in premium.

In general, however, I think the damage is done and that the world will see higher energy prices for years to come. That will have significant negative economic impact, and that will weigh on stock market valuations overall, except of course, energy sector stocks.