Trump Says We Won the War. The Market Says 'Prove It.'

President Trump declared victory in Iran on Tuesday afternoon, announcing that the war is effectively over and that the Strait of Hormuz will reopen. Unfortunately, it is not that simple.

The U.S. may be winning, but there is still much to be done. The U.S. and a group of mediators are discussing the possibility of holding high-level peace talks with Iran as soon as Thursday, but they are waiting for a response from Tehran, according to Axios. If that happens, then things will look quite different.

The market's reaction was skeptical. Stocks moved higher but the major indexes struggled, volume was unimpressive, and breadth finished slightly negative. The Russell 2000 (IWM) led with a gain of 0.5% but the weak close illustrates the lack of conviction. After four weeks of whipsawing on every headline out of the Middle East, investors have learned to wait for facts before celebrating.

Trump has signaled a near-certain victory multiple times during this conflict, and each time, the optimism faded when the reality proved more complicated. The IRGC does not answer to the executive branch in Tehran and has its own reasons to keep fighting. Oil infrastructure across the Gulf remains damaged. Ships are still sitting outside the Strait waiting for clearance that has not come.

If Iran refuses to join the proposed peace talks the situation will remain messy and unclear, but if actual meetings occur it will likely ignite aggressive buying. What the market wants to see is oil moving through the Strait and an acknowledgment from Iran that they have no choice but to negotiate.

Tuesday's flat action with a slight downside bias was healthy after Monday's excitement. Charts are slowly improving and building some support but are not showing signs of persistent upside that would justify aggressive buying.

Bonds bounced back slightly from recent weakness but still closed with losses. Oil finished higher, reflecting continued skepticism. If bonds strengthen and oil pulls back on Wednesday the war-is-over narrative will develop further. If rates move higher again, it signals that the inflation concern has not been resolved, regardless of what happens with the fighting.

My approach has not changed. Patiently watching setups and moving incrementally. Talk is cheap. We need to see a meeting before we can even begin to discuss an end to the war. When the proof arrives, the opportunity will be significant.

Have a good evening. I'll see you Wednesday.

At the time of publication, Rev Shark had no positions in any securities mentioned.