Market snapshot: can investor relief turn into belief? 

US markets soared in their first chance to react to the Iran ceasefire as investors grabbed the opportunity they had been waiting for to reboard the equity train.

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Gains were strongest among the indices which had been most beaten down during the conflict, including the Nasdaq and smaller cap Russell 2000, where gains of almost 3% undid some of the recent damage. Travel stocks spiked on hopes of lower fuel costs, with rises of almost 8% for the likes of United Airlines Holdings Inc (NASDAQ:UAL) and over 11% for cruise ship company Carnival Corp (NYSE:CCL). More positive news came in the form of reports that the US would work with Iran to remove nuclear material from the country.

Relief has now been reflected in market movements, but the next challenge is to turn this into belief. There have already been reports that the ceasefire is a fragile one, with further Israeli attacks on Lebanon. This has led to threats that Iran could withdraw from the truce if the attacks continue, while White House comments have remained aggressive as forces remain in the area, poised to act if necessary.

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In addition, the oil price rose by 2%, although remaining below the psychologically important $100 per barrel level. There are conflicting descriptions of the current state of play in the Strait of Hormuz. The US insist that there has been an uptick in traffic, but apparently ships have been told by Iran that the Strait remains closed. Indeed, tanker-tracker firms have reported a trickle of ships passing through compared to pre-war levels which, as a key negotiation strand, is one which needs to be fully resolved.

Nor is it clear that the list of demands from the two parties have much common ground, such that this news-driven market will mean that volatility remains nearby. Dow futures are currently pointing marginally lower, as investors reflect on the possible success or otherwise in the next stage of negotiations. In the meantime, yesterday’s potent rally has improved the look of the main indices, reducing the year to date losses of the Dow Jones and S&P500 to just 0.3% and 0.9% respectively, with the Nasdaq trailing by 2.6% after its strong gains.

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Asian markets shared in some of the scepticism, based both on the fragile truce as well as another hike in the oil price. With a high dependence on imported energy, the region will be scrutinising developments in the Strait and prices were generally lower across each market, unwinding some of their own sharp spikes from the previous session.

The FTSE100 asserted its position as an investment destination once more, edging ahead at the open despite the wider concerns. The gains were achieved despite the technical drag of nine stocks being marked ex-dividend, including Standard Life (LSE:SDLF), Croda International (LSE:CRDA), Reckitt Benckiser Group (LSE:RKT) and Lloyds Banking Group (LSE:LLOY). A well-received update from Metlen Energy & Metals (LSE:MTLN), despite a fall in profits, and a broker upgrade for DCC (LSE:DCC) cushioned the blow, while BP (LSE:BP.) and Shell (LSE:SHEL) also tracked the oil price higher.

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The fragile gains nonetheless added to the strength of the primary index in the year to date, where a gain of 7% is in sharp contrast to many of its global peers, with its idiosyncratic mix of stability and defensiveness being rewarded. The more domestically focused FTSE250 does not enjoy such insulation, however, and its dip at the open reversed some of its gains from the previous session and widens its loss to 0.7% in the year so far.