‘Just around the corner’: US’ influence over financial markets | Cash Call | Andrew Wong

How powerful is the influence of the US over global financial markets? The answer can be seen in the S&P 500’s ability to continue setting new highs even though the US and Iran have yet to reach a lasting ceasefire agreement. The influence of Washington is clearly enormous, because President Donald Trump has repeatedly claimed that a deal with Iran is close. Such statements have been circulating for months, with the US administration repeatedly suggesting that an agreement would be reached in the near term, while insisting that Iran is eager to reach a deal. Yet, despite all these assurances, there has been little tangible evidence that any agreement is actually close to being implemented.

More importantly, before the US and Israel launched a full-scale air campaign against Iran in late February, the Strait of Hormuz remained fully open to commercial shipping. Today, the number of vessels passing through the strait is reportedly less than 10 percent of pre-war levels. In other words, crude oil exports from the Middle East remain severely disrupted. Even if US oil producers continue to increase domestic output, the reality is that global oil supplies remain constrained, meaning that energy-related inflationary pressures are unlikely to disappear anytime soon.

That ultimately creates another problem: Central banks around the world could be forced to keep interest rates higher, or even raise them again. This helps explain why global bond yields have remained elevated in recent weeks. Such an environment is clearly unfavorable for equities. Yet whenever the Trump administration once again suggests that a deal with Iran is "close to being finalized," the three major US stock indexes seem to respond almost instinctively by moving higher. This is precisely why the power of US political messaging should not be underestimated.

What makes the latest development even more interesting is that it was Treasury Secretary Scott Bessent who recently told markets that an agreement was close. Given Bessent's reputation as a prominent investor and former protege of billionaire investor George Soros, his comments naturally carry considerable weight on Wall Street. Investors also understand that the Trump administration has a strong incentive to support higher equity prices ahead of the midterm elections. A rising stock market is, after all, one of the few developments the administration can point to as evidence of economic strength.

But the question is: Can US equities really continue to rise indefinitely simply on the expectation that a deal is "just around the corner"? Inflationary pressures have not disappeared, the labor market is beginning to show signs of strain, interest rates face renewed upward pressure, and the Iran crisis remains unresolved. At some point, financial markets will have to confront the underlying reality rather than continue trading on political optimism.

As Berkshire Hathaway chairman Warren Buffett has repeatedly warned, there are simply too many gamblers in the market today. That makes patience and observation increasingly important. More importantly, Iran now appears to be willing to make the situation even more difficult for Washington ahead of the midterm elections. The latest reports suggest that Tehran is demanding compensation from the US before reopening the Strait of Hormuz.

If that is indeed the position being taken by Iran, should investors really continue to assume that Wall Street can simply party its way through to the midterm elections? Perhaps the greater risk now is not missing the rally, but being caught off guard when the narrative suddenly turns. Investors should be careful not to confuse political optimism with a lasting resolution – and should be prepared for a potential reversal when reality finally catches up with expectations.

Andrew Wong is a veteran independent commentator

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