Hope of Iran Deal Bounces Stocks But Can’t Fix Oil or Bond Problems
Stocks spiked on a headline about progress in the Middle East, but the issue is what did not move.
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The market jumped midday on Thursday following a Reuters report that U.S. and Iranian negotiators are working toward a phased deal. The first step would have Iran reopen the Strait of Hormuz in exchange for the U.S. lifting its naval blockade, possibly along with access to frozen Iranian assets. Stocks spiked on the headline.
That sounds like good news but the issue is what did not move. Oil barely blinked and stayed higher, with Brent still up around 2.5% near $105 after coming off a session high above $108. Bonds did not care at all. The 20+ Year Treasury Bond Fund (TLT) hit new multi-year lows and the 10-year finished well over 5%. Anxious investors acted on the hope while oil and bonds laughed. The two markets that drive the inflation story did not buy it.
Stocks Took the Bait, Bonds Did Not
When stocks rally on a headline that oil and bonds ignore, the stock move is usually the one that is wrong. Oil is the thing a Hormuz deal would actually fix, and oil stayed up. If the market that trades the underlying commodity does not believe that supply is about to be fixed, the equity bounce on the same news is running on hope rather than substance.
We have watched this exact pattern several times this year. A hope-of-a-deal headline spikes stocks, the deal does not materialize or the sequencing falls apart, and the premium goes right back in. The report itself indicated the obstacle, that neither side wants to go first on the sequencing. That is the same wall these talks have hit repeatedly since the spring.
Damage Underneath Keeps Building
The indices ended with only minor losses, but that is the same illusion I have been writing about all week. Breadth was 40% positive and the new highs and new lows were brutal, 75 new highs against 400 new lows. The new-low list has been expanding fast, and 400 is a number you see in a serious decline, not a market a few percent off its highs.
What is holding the indices up is a shrinking group of big caps. Alphabet (GOOGL), Meta Platforms (META), (AMD), Eli Lilly (LLY) and Visa (V) were strong and covered for the broad weakness. That is the whole story of this market in one sentence. A handful of giants mask a market where 400 stocks made new lows. The averages look OK. The average stock does not.
Game Plan
Nothing about Thursday changes my read. A midday spike on an Iran headline that oil and bonds rejected is not a reason to do anything, and 400 new lows is not the profile of a market that has found a floor.
The one thing that would matter is a meaningful turn in the bond market, and we did not get it. TLT at new multi-year lows with the 10-year over 5% is the pressure that is driving everything, and until that stabilizes, the rallies are going to keep getting sold. I stayed patient, I did not chase the midday pop and I am letting the selling continue its work. The opportunities are being created in those 400 new lows and everything else that is slipping. They are just not ready to buy yet.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
