Futures are back in positive territory this morning on hopes that the US and Iran will reach an agreement before the Wednesday deadline. That would match the almost two-month pattern of 'tensions rise over the weekend, markets sell off on Monday, hesitate on Tuesday, sentiment improves on optimistic — but not necessarily substantiated — announcements from the US, markets rally into Friday, and the weekend brings fresh bad news.'

Crude oil gave back much of its early-week jump during yesterday’s session. US crude retreated nearly 5%, to close Monday up 2.80%, while Brent crude ended the session up only 1.50% and is consolidating near $95pb this morning. As a result, energy stocks barely benefited from the early gains. The SPDR energy sector ETF was broadly flat, reflecting oil’s inability to consolidate gains despite geopolitical tensions.

Why are oil prices falling when the Strait of Hormuz remains closed and prolonged disruptions are expected to constrain energy supply for months? Kuwait Petroleum Corp, for example, declared force majeure yesterday on crude and refined product shipments, saying it won’t be able to meet full obligations due to circumstances beyond its control.

The longer the Strait of Hormuz disruptions persist, the scarcer energy becomes, considering that around 20% of global oil flows used to transit through the strait before the conflict. Houthis are also threatening to attack vessels rerouted via the Red Sea. It would take years — investment and sustainably higher oil prices compared to pre-war levels — for other producers like Brazil, Guyana, Suriname and Venezuela to help fill the gap. So why the pullback? Is it just hope?

The answer is likely no. Hope plays a role, but other factors are at work. First, releases from strategic reserves may have temporarily supported supply, though these buffers are diminishing. But more importantly, demand destruction is already underway. Reports suggest European refineries, for example, have reduced demand due to higher input costs — putting downward pressure on prices. This aligns with what we discussed at the start of the conflict: oil prices cannot rise indefinitely, as higher prices ultimately curb demand.

Looking at price action, a downside correction trend appears to be forming despite intense geopolitical uncertainty. From a technical perspective, US crude remains in a bearish consolidation zone below $94pb, which aligns with the 38.2% Fibonacci retracement of this year’s rally, and could retreat toward the $80–87pb range, with or without a resolution in the Middle East — although a peace scenario would likely accelerate the move.

What does this mean for the energy complex? Energy stocks could come under pressure alongside oil prices. On Friday, the SPDR energy ETF has slipped into a medium-term bearish consolidation zone after falling below its own 38.2% Fibonacci retracement. That said, recent price spikes should support earnings, and upcoming results from energy majors will be key. Strong earnings and potential buybacks could help put a floor under the downside.

Elsewhere, technology stocks — particularly AI-related names — are back in focus as recent earnings helped ease concerns about heavy AI spending and uncertain return timelines. The sector continues to operate in its own lane, with ongoing expansion in AI models and applications driving demand for infrastructure.

In this context, Marvell Technology surged nearly 6% yesterday after reports that Google is developing new AI chips to compete with Nvidia, while Amazon is investing another $5bn in Anthropic and may add up to $20bn more to stay in course. The Roundhill Magnificent 7 ETF rebounded from a key Fibonacci support level, avoiding a move into medium-term bearish consolidation. With valuations appearing more attractive, investors seem willing to look past concerns around leverage and returns.

Zooming out, the geopolitical and macro backdrop remains fragile, and investors are turning to data to gauge the economic impact of the Iran conflict. Later today, US retail sales are expected to have risen in March, largely due to higher energy prices, while ex-energy sales may show signs of pressure.

The US 2-year yield has eased since its late-March peak, as markets bet that higher energy prices could weigh on growth and eventually prompt a more accommodative monetary stance despite inflation risks.

Today, all eyes turn to Kevin Warsh’s Senate hearing for signals on where Federal Reserve (Fed) policy may be headed next. Warsh has argued that AI-driven productivity gains could help offset inflation, potentially allowing the Fed to cut rates despite a short-term energy-driven price spike. If he maintains that stance, short-term yields could ease further, supporting equities. However, he has also been critical of the Fed’s large balance sheet, and any push for faster normalization could tighten liquidity.

In any case, Fed funds futures are not pricing a rate cut before December. That outlook remains highly dependent on developments in the Middle East and could shift quickly. For now, uncertainty remains the only certainty — but equity markets appear relatively unfazed.