The situation in Iran escalates and reconstructs market logic, with US bond yields breaking through 4.2%. Investors are caught in a dilemma of "stepping into the void vs. collapse" before the earnings season.

After the failure of the Iran peace talks, the Iran war may escalate further, causing severe turbulence in the global financial markets. In the previous week, the fragile ceasefire agreement pushed the stock market higher and oil prices lower, marking the largest drop this year. Following the unsuccessful negotiations between the US and Iran over the weekend, US President Donald Trump announced the blocking of the Strait of Hormuz and stated on social media, "Any Iranians who fire on American or peace ships will be blown to pieces!" Iran responded by saying they will not allow the US to block the waterway - the strait carries about one-fifth of the world's oil and liquefied natural gas shipments. The escalating rhetoric from both sides has increased attention on the ceasefire agreement. The agreement last week led to a strong rebound in risk assets: the S&P 500 index rose over 3.5%, the MSCI Emerging Markets Stock Index rose by 7.4%, and Bitcoin surged nearly 10%. By the end of last week, US WTI crude oil futures fell by 13.4%, Brent crude oil closed at around $95 per barrel, lower than the $112 in March. The news of the breakdown in negotiations quickly spread, leading the Trump administration to order a comprehensive military blockade against Iran starting on April 13th, and deploy naval forces to conduct mine-sweeping and escort missions in the Strait of Hormuz. The US Central Command stated that the US military will begin the blockade of all maritime traffic in and out of Iranian ports on Monday morning at 10 am New York time. This blockade will cut off the remaining small amount of oil still being transported through the waterway, adding new pressure to the global oil market. Iran responded by stating that any warships approaching the Strait of Hormuz under "any pretext" will be considered a violation of the ceasefire agreement. In addition, Iran's top military advisor emphasized that the Iranian armed forces will not allow the US to block the strait. In the energy markets, the threat of an Iranian blockade and US military deployments resulted in a highly impactful gap-up opening in crude oil futures. Prices of WTI and Brent crude oil recorded astonishing gains of over 5% in the first two hours of trading, while US stock futures markets suffered significant losses, with the S&P 500 index and NASDAQ 100 index futures recording notable declines. Investor considerations Since the conflict erupted at the end of February, market reactions to various headlines have been challenging. With the US and Iran continuously adjusting strategies for negotiations, sharp market fluctuations have become the norm. Christophe Boucher, Chief Investment Officer of Paris-based ABN Amro Investment Solutions, stated, "As far as I know, most investors have not reduced their positions - they are still in the market, but avoiding strong one-way bets. This is a tricky situation because there is considerable downside, but investors also cannot afford to miss out on rebound opportunities." Kristine Aquino, a macro strategist at Bloomberg's Markets Live, stated that last week, as investors became more optimistic about the possibility of normal oil circulation, the S&P 500 index almost erased all post-war losses. However, if an agreement is not reached, these hopes are likely to be dashed, making the market vulnerable to the impact of rising energy costs. Adding to the challenges, the US first-quarter earnings season is about to begin. Analysts expect S&P 500 constituent stocks' profits to increase by about 12% year-over-year, the lowest level since the second quarter of 2025. Goldman Sachs will be the first to release US earnings on Monday. Investors are eagerly watching corporate leaders' views on multiple risks, including the potential for war-induced spikes in oil prices leading to exacerbated inflation, and the risk of reduced consumer spending. Data from Friday showed that the US Consumer Price Index (CPI) saw its largest increase since 2022, despite moderate core CPI, consumer confidence plummeted. US-Iran tensions reshape wartime market logic With the official breakdown of the Tehran peace talks on April 12, 2026, the global financial markets underwent a dramatic reconfiguration during the subsequent late-night trading session in New York. Previous predictions from Goldman Sachs Asset Management (GSAM) officials regarding the Federal Reserve maintaining a "firmly watching" stance and cutting rates by the year-end, have become obsolete in the face of current oil prices surpassing $100 mark and the reality of a comprehensive military blockade. In the fixed-income markets, the previously attractive 3.8% yield level has become a thing of the past, as the US bond market now faces a dual blow from inflation expectations and war funding pressures. By the opening on April 13, the yield on two-year US treasuries, highly sensitive to policy changes, had quickly broken through the 4.2% level and showed momentum to further test the 5.0% level. The current market focus has completely shifted to hedging against the "physical supply disruption" risks caused by the blockade of the Strait of Hormuz. As the official trading session in New York on Monday approaches, the market is closely watching for any potential military confrontations in the strait, as this will not only redefine the top of the US bond yields but also determine whether the global inflation trajectory will enter an uncontrollable upward spiral.