17.03.202610:06 Forex Analysis & Reviews: Market rally driven by rhetoric, not reality

Even in the rain, the sun sometimes peeks through. Positive tech headlines, optimism from big banks, and the passage of a few tankers through the Strait of Hormuz produced the S&P 500's best one-day rally since February. President Donald Trump said that foreign states are rushing to assist the US and urged the Fed to hold an emergency meeting and cut interest rates immediately.

Daily S&P 500 performance

NVIDIA said that it plans to generate $1trn in profit by 2027 thanks to its Blackwell and Rubin chips. OpenAI is in talks with private investment firms about a $10bn JV. Those headlines were enough to revive interest in AI and kick off a tech rally. Investors immediately bought into the idea that AI and a calm credit backdrop would provide a cushion against shocks from higher oil prices.

Morgan Stanley noted that the S&P 500 had held up reasonably well despite the Middle East conflict, allowing the bank to remain constructive on the index. Goldman Sachs takes a similar view, pointing out that historically, US equities have rallied strongly after geopolitical shocks fade. Fundamentals have softened, and future corporate profits are being painted in a brighter light, creating conditions to buy pullbacks.

S&P 500 P/E ratio

By contrast, Bank of America warns that investors are underestimating the scale of the potential disaster. Its focus is on inflation upside, but in reality, the worst outcome could be a global recession. RBC Capital Markets says that if the Middle East conflict lasts another 3–4 weeks, oil could exceed 2022 peaks. If it lasts several months, oil prices could surpass the 2008 high.

Investors are still buying into Trump's rhetoric on escalation — for example, claims that foreign states are rushing to escort tankers through the Strait of Hormuz. In fact, Germany said it won't get involved.

The same goes for the US president's call to Jerome Powell to cut interest rates at an emergency FOMC meeting. Committee members — aside perhaps from Stephen Miran — are unlikely to consider such a move. Trump's lifeline is not working, even if bulls wish it were.

Technically, the S&P 500 daily chart shows the formation of an inside bar. That supports placing pending buy orders at 6,730 and sell orders at 6,670. Overall, the odds of continued corrective action are higher than the chances of a resumed uptrend.