US shares rallied at the start of the week, with most major indices up by more than 1%, and European markets followed on Tuesday. The FTSE 100 rose 0.2%, the Dax nearly 1%, and the Cac 0.4%, while the FTSE 250 outperformed as oil fell below $100 per barrel.
Brent crude traded around $98.50 after reports that Saudi Arabia is pressing the US to drop its blockade on the Strait of Hormuz. The Strait of Hormuz remains closed, and both the US and Iran have indicated that talks will progress in the future.
Attention Shifts Toward Earnings
Attention is shifting towards earnings, including BP, whose share price reversed earlier gains despite a positive trading update. BP reported an “exceptional” Q1 for oil trading, flat quarter-on-quarter oil and gas production, and said it will report results at the end of this month.
BP shares are up 33% so far this year, but slipped on Tuesday as crude moved below $100 per barrel. Some commodity traders recorded losses early in the conflict, while others profited from trading cargoes and tankers at higher physical market prices.
The S&P 500 returned to pre-war levels, and the Nasdaq moved back to early February levels. Oracle rose 12% on Monday and was the best-performing stock on the S&P 500.
The dollar index fell to its lowest level since early March, while markets watched US bank earnings, including JP Morgan’s Q1 results. Inflation in Germany and Spain rose as expected, and attention turned to IMF Spring meetings and speeches by central bankers, including ECB President Lagarde.
Lessons From Prior Conflict Driven Rallies
Looking back at this time in 2025, markets were growing optimistic about the potential end of the conflict that closed the Strait of Hormuz. That optimism pushed risk assets higher as oil prices began to fall. Today, we are seeing a similar pattern as Brent crude has eased to $88 a barrel amid hopes of de-escalation in the South China Sea, down from over $95 just last week.
We should remember the lesson from BP’s exceptional trading results in the first quarter of 2025, which were driven by unprecedented volatility. With the CBOE Volatility Index (VIX) currently sitting around 18, there is an expectation of continued price swings in the energy sector. This suggests that buying straddles or strangles on energy ETFs could be a prudent way to trade the uncertainty without betting on a specific direction.
In April 2025, the S&P 500 rallied back to its pre-war levels, signaling a broad risk-on sentiment for equities. We see echoes of that today as the index trades near 5,600, having recovered most of its losses from the recent pullback. Derivative traders should consider the elevated premiums for puts as a sign to either hedge long portfolios or write covered calls on existing holdings to generate income if they believe the market will consolidate from here.
The tech sector rebound in 2025, following an early-year “AI scare,” was a key driver for US indices. Now in 2026, after a massive run-up, some of those same AI-related stocks appear overvalued, with price-to-earnings ratios exceeding 60 for many market leaders. This environment is ripe for collar strategies on tech-heavy indices like the Nasdaq 100 to protect gains while limiting upside.
As risk sentiment improved in 2025, the dollar index weakened significantly. Today, the situation is different as sticky US inflation, last reported at 3.1%, is keeping the dollar strong. Traders should watch upcoming central bank speeches closely, as any hint of a policy divergence from the Fed could spark major moves in currency options, particularly in pairs like the EUR/USD.
