The S&P 500 rose after CPI data was not as high as feared. Markets expected the Federal Reserve not to push a more aggressive stance on rate rises, given the state of the jobs market.
Attention also centred on claims of Pakistan-linked talks aimed at ending the Iran war. Markets were described as looking past ongoing issues around the Strait of Hormuz and reports that a ceasefire was not being followed in key areas.
China Joins Regional Diplomacy
China was described as taking part in the talks, alongside references to a Kuomintang opposition leader visiting Shanghai. Saudi Arabia and the UAE were mentioned in relation to the wider regional backdrop.
There were also references to reports of Iranian frozen assets being released ahead of negotiations, attributed to IRNA. Expectations of renewed hydrocarbon flows were noted.
Market reactions to new threats during the week were described as becoming smaller each time, including on Friday. Sentiment was presented as improving, but without a view that the conflict was fully resolved.
We’ve seen the S&P 500 rally past 6,200 because the market believes the Fed won’t raise rates, especially after the March 2026 Core CPI came in at a manageable 3.6%. This confidence stems from seeing the market correctly anticipate the Fed’s dovish stance throughout the tensions of 2025. The primary driver remains the de-escalation in the Iran conflict, with traders betting on a positive outcome from the Pakistan-led negotiations.
Options Strategies In Lower Volatility
This shift in sentiment has crushed market volatility, with the VIX falling from highs near 35 during the peak of the conflict in late 2025 to around 18 today. For derivative traders, this means the high premiums on options are gone, making it attractive to sell puts or put credit spreads on stable, large-cap stocks. We are essentially being paid to agree that the market won’t collapse from here.
The Fed’s position reinforces this trade, as the CME FedWatch Tool now shows an 85% probability of rates remaining unchanged through the summer. This stability from the central bank provides a strong backstop against market panic. With monetary policy on our side, the path of least resistance for the broader market appears to be sideways to up.
However, the easing of geopolitical tensions, which saw WTI crude oil prices fall from over $115 a barrel to the mid-$80s, presents a specific opportunity. We should consider buying puts on energy sector ETFs that ran up hard during the war scare. As the world prices in peace and the secure flow of oil, these names are likely to underperform the broader market.
While optimism is growing, the market isn’t euphoric, as the path to a lasting peace is still being negotiated. This suggests that while we can be bullish, we should express it by using strategies like call spreads on the SOXX semiconductor ETF, which benefits from restored helium supply chains. This approach allows us to profit from the upside while defining our risk if the diplomatic situation unexpectedly deteriorates.
