3 Probable Market Scenarios For This Week

This morning, markets surged hard. But before you chase this rally, you need to understand exactly what moved, why it moved, and most critically, whether what moved it is real. President Trump posted on Truth Social early Monday morning that the U.S. and Iran have had “very good and productive conversations” over the last two days. After that single announcement, the stock market shot up: the S&P 500 rose 2.2%, the Dow jumped over 1,000 points, and the Nasdaq gained 2.4%. At the same time, oil prices fell more than 11%, gold rose over $150, and bonds rallied. Basically, every major market panic trade quickly reversed. This massive move occurred before any verifiable diplomatic evidence emerged. Now, there is a serious complication every investor must understand going into this week: Iran’s Foreign Ministry has explicitly denied that any direct or indirect contact with the United States has occurred. This means today’s rally is, at its core, a bet on Trump’s word over Tehran’s. That is not inherently wrong, but a risk profile that must be priced consciously, not assumed away. Analyzing the Recent Stock Market Surge: A Four-Week Overview Over the four weeks since the U.S. and Israel began striking Iran, equity markets had been in a sustained, grinding decline. The S&P 500 had fallen roughly 7% from its late-January peak. The Nasdaq had dropped nearly 10%, pushing it to the edge of correction territory. The Dow had posted four consecutive weeks of losses, which is its longest losing streak in three years. U.S. equity funds bled $24.78 billion in net outflows for the week ending March 18 alone, while money market funds absorbed $32.73 billion of that same capital. The driver of all of this was oil. Brent crude had surged from roughly $75 per barrel to over $113 at its peak, leading to a gain of more than 50% in under a month. West Texas Intermediate (WTI) tracked similarly. That kind of oil spike does not just raise gasoline prices. It enters the economy through every supply chain simultaneously: manufacturing input costs, freight costs, airline fuel costs, and consumer goods pricing. The Federal Reserve, which had been expected to cut rates in the first half of 2026, suddenly found itself staring at a new inflationary shock. The Fed held rates unchanged at 3.50%–3.75% at its most recent meeting and signalled a higher inflation forecast going forward. JPMorgan’s (NYSE:JPM) head of global markets strategy, Dubravko Lakos-Bujas, had cut his year-end S&P 500 target from 7,500 to 7,200. He wrote that oil rising roughly 30% or more in a short window is “the point when oil increasingly starts to hurt the S&P 500” because households are forced to recalibrate their spending habits entirely. That was the setup going into this morning. The market was already stretched lower, investor sentiment was deeply negative, institutional money had moved to the sidelines, and a single Trump ultimatum that he would “obliterate” Iranian power plants if the Strait of Hormuz was not reopened by 7:44 p.m. ET Monday had the market positioned for the worst. Monday's news, no matter the diplomatic details, surprised everyone by being the opposite of what was feared. That shift from worry to relief sent all the major indexes soaring over 2%. Stock Rally Insights: Separating Real Momentum from Market Speculation The most important thing to understand about today’s rally is that nothing has actually changed in the physical energy market yet. The Strait of Hormuz remains functionally closed. Trump suggested it could reopen “very soon” and could potentially be “jointly controlled” by U.S. and Iranian leadership, but that is a political statement, not an operational reality. Until tankers begin moving through the Strait again in volume, the structural oil supply shock that has been driving inflation, yield pressure, and equity weakness has not ended. It has been paused diplomatically, and pauses can end. While the downside in oil may be capped by Trump’s announcement, meaningful uncertainty remains about when flows through the Strait of Hormuz can fully resume, and every day of continued closure represents a compounding volume deficit in global supply. Therefore, Investors who long energy stocks should not read today as the beginning of a collapse in the oil trade. The Five-Day Clock: Scenarios and Probabilities For investors who need a framework for what happens over the next five days, here are the three most likely scenarios: Scenario 1 – Genuine Diplomatic Progress (Probability: 30–40%): Formal or back-channel U.S.-Iran talks materialize, the Strait of Hormuz begins reopening, and oil prices fall toward the $80–$90 range. The S&P 500 likely rallies another 3–5% over the week, with tech leading. Rate-cut expectations re-emerge for H2 2026, and the stagflation narrative dissipates. This is the bull case, but Iran’s denial makes this the less likely scenario entering Monday. Scenario 2 – Status Quo Limbo (Probability: 40–50%): No verifiable diplomatic progress emerges over five days, but Trump extends the pause or reframes the timeline. Oil stabilizes in the $95–$105 Brent range. Equities trade sideways to slightly lower as the relief rally fades without new positive catalysts. This is the base case and the least volatile outcome. Scenario 3 -Talks Collapse, Strikes Resume (Probability: 15–25%): Iran’s denial proves accurate, diplomatic talks never materialize, and Trump faces a credibility choice between resuming strikes or backing down. If strikes resume, oil re-spikes above $110, Treasury yields jump, and equities give back all of today’s gains and potentially more. The Strategic Takeaway for Investors If you were underweight equities due to geopolitical fear, a partial re-entry on this pullback in yields and oil makes sense, but avoid overexposure and size conservatively. Before going fully risk on, wait for tanker traffic to resume operations in the Strait of Hormuz. In addition, the Fed's April PCE inflation report is expected to show that energy-driven inflation is easing, which is a positive signal for investors, suggesting the economy could keep growing without triggering higher interest rates. If Iran ever publicly confirms that it has had contact or talks with the U.S., this rally could continue. However, if Iran keeps denying any contact throughout the week, then today's market bounce might fade quickly. Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.