Stock market bulls are on track to start a new week of trading. Oil prices are plummeting on Monday following news of a memorandum of understanding between the US and Iran to end the war and reopen the vital Strait of Hormuz. This has improved the inflation outlook and lowered bond yields. Just in time for Federal Reserve Chairman Kevin Warsh’s first policy meeting as he leads the central bank this week. Additionally, SpaceX’s massive initial public offering went smoothly, allaying fears that a large supply of new shares would drag down the overall market. If Hormuz officially resumes oil exports and continues to operate, the ripple effects could mean a very good second half of the year. Monday’s rally across the board, led by a 3% rise in the Nasdaq, was driven by optimism about what’s to come. Ultimately you need to see follow-through. For now, this situation on Monday is why, despite all the doom and gloom we hear every day, it’s too risky to exit the market. If the US and Iran sign a lasting peace deal, it’s hard not to be optimistic about the stock market. True, valuations are a bit high, with the S&P 500 trading at about 21 times forward earnings, but if oil exports through the Strait of Hormuz are about to resume, oil prices will likely fall. Of course, restarting critical global oil supply lines will take time, so we won’t see an immediate retreat to where we were before the conflict began on February 28 (mid-to-high 60 sabarrels for WTI crude). But for a market that is more concerned about the direction of commodity prices, this latest information is definitely a positive, given what it tells us about the future direction of inflation and, by extension, interest rates. @CL.1 YTD Mountain WTI crude oil year-to-date performance. It certainly makes Warsh’s job a little easier this week, when he holds his first Federal Open Market Committee press conference on Wednesday afternoon. With oil prices falling on the back of easing geopolitical tensions, he will no longer need to appear hawkish. Instead, he has gone undercover to emphasize that the Fed’s policy stance is appropriate for now and to argue that lower inflation is on the horizon. The CME FedWatch tool still projects at least one rate hike in 2026. But the odds will track oil and bond yields. Both are set to favor bulls. Of course, if bond yields fall and remain low, especially at the longer end of the curve (think treasuries over 10 years), that could help stimulate demand in the housing market. As Lennar’s CEO emphasized during the homebuilder’s Friday earnings call, interest rates are a key factor in the home-buying process because they affect monthly mortgage payments. However, the price of petrol at the pump and the cost of electricity to heat and cool the house also weigh on consumers’ minds when making big-ticket purchases. An increase here definitely bodes well for a bull market, as homes tend to punch above their weight economically. This is why the club name “Home Depot” holds a rally on Monday. One might argue that an increase of more than 1.5% in the stock price seems relatively modest given the potential gains. Conversely, we’ve been fooled so far about the potential for a recovery in the housing market, so it stands to reason that Home Depot buyers won’t leave in earnest until we see a real change in interest rate expectations. Friday’s successful SpaceX debut is a crowning achievement. Most of the selling pressure to raise funds for SpaceX’s position is likely in the past for now. And while the past week and a half has been a bumpy one for the market, particularly for some hot artificial intelligence names, the bull market hasn’t broken yet. We are not completely alert to market risks, so we cannot completely ignore caution and buy up everything. On the geopolitical side, the US and Iran have only agreed to extend the ceasefire for 60 days while they work towards a formal peace deal. The thorny issues surrounding transportation in Hormuz and Iran’s nuclear program need to be resolved. Even if oil were to start flowing through Hormuz again, we would expect to see a risk premium in the waterway. Moreover, since peace in the Middle East is tied to what happens between Israel and Lebanon’s Hezbollah, ending the war may actually be about much more than just Washington and Tehran. It is also possible that more shares will be supplied to the market. First, Alphabet’s at-the-money stock offering won’t begin until the third quarter, potentially leading other corporate tech giants to follow suit and sell shares to fund further AI capital spending. And of course, we’re still waiting to see when Anthropic and OpenAI plan to launch their IPO roadshows. Both AI startups secretly filed IPO documents with U.S. regulators. However, given how well the market fared in the first real test of major new stock supply (and likely the second given the early stages of the Alphabet stock sale), investors should feel a little more reassured about the market’s ability to absorb supply, especially if the geopolitical backdrop remains benign and corporate fundamentals remain resilient. Structures are in place to draw new capital into the market. Not only have some of the AI trades experienced a quick and healthy correction recently, but the sustained decline in bond yields should increase investor appetite for more ravaged areas of the market. In addition to housing, this includes financials that rely on healthy consumers, such as Capital One, which bought more on Monday morning, as well as cyclical stocks, such as the aforementioned Home Depot, Boeing, DuPont, and Honeywell, which are highly correlated with GDP growth. Markets that rise with a wide range of participants tend to be seen as more resilient, meaning they have more legs to stand on, and are therefore more attractive to investors. Another thing that will improve sentiment on Wall Street is big deals getting done. Monday came when Fox Corp. acquired Roku. Conclusion For now, investors have reason to celebrate as the US and Iran have a renewed commitment to working toward peace. The chances of the bull market continuing are certainly increasing, especially considering that tensions in the Middle East appeared to be worsening a week ago. This is a great opportunity for investors to take a calm look at their holdings. If you have the opportunity to add to a tattered name that is running out, take it. We did just that with Capital One. Don’t forget to also consider which stocks could beat Monday’s optimism and provide an opportunity to lock in profits. A lot of things are going well in the market, but no one is benefiting and getting hurt. (Jim Cramer Charitable Trust Long COF, HD, DD, HON, BA. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
