The Dow Jones Industrial Average reached a record near 52,100 on Tuesday after a two-day rise tied to Donald Trump’s announced ceasefire between Washington and Tehran, including plans to reopen the Strait of Hormuz and lift a naval blockade. The late-February conflict had shut roughly a fifth of global supply, pushing crude towards $120 and coinciding with the Dow trading around 45,000 in April; as the ceasefire took hold, oil fell back to the mid-$70s, easing the inflation premium embedded in risk assets. The agreement remains unsigned, and earlier truces have failed, leaving markets exposed if hostilities resume.
Attention now shifts to the Federal Reserve meeting on Wednesday, the first chaired by Kevin Warsh, with policy announced at 18:00 GMT and a press conference at 18:30 GMT. CME FedWatch shows the probability of at least one hike by December near 60%, with a quarter-point move to a 3.75% to 4.00% range seen as the base case, while the funds rate has been 3.50% to 3.75% since December and cuts are barely priced. April delivered four dissents, and Warsh’s scepticism of forward guidance amplifies focus on any shift in stance and the dot plot; technically, daily Stoch RSI is near 45, the 5-minute reading near 19, resistance sits at 52,100, and support levels include 51,800, about 51,650, and 50,000 where the 50-day EMA rises.
Fed Uncertainty Amid Record Highs and Disinflation
We are looking at a market at all-time highs, driven almost entirely by the Iran ceasefire news and the resulting drop in crude oil. The Dow’s surge to near 52,100 is a direct bet on lower inflation as oil has fallen over 35% from its wartime peak of $120. We must remember how the 2022 energy spike fed directly into the inflation the Federal Reserve is still trying to control, making this a powerful but single-threaded narrative.
The immediate risk is tomorrow’s Federal Reserve meeting, the first under new Chair Kevin Warsh. The market is pricing in a 60% probability of at least one rate hike by December, according to CME FedWatch futures, which is completely at odds with the disinflationary peace trade. We are watching the Fed’s new dot plot for any sign that policymakers’ own forecasts are turning more aggressive, which would challenge the current rally.
Volatility and Risk Management Into the Fed Decision
Given this conflict between geopolitical optimism and monetary policy risk, we see volatility as the main theme. The uncertainty surrounding Warsh’s communication style and the fact that the ceasefire is not yet signed makes this a binary event. Buying expensive call options at a record high right before such a catalyst is a risky proposition; it’s better to prepare for a significant move in either direction.
Our strategy is centered on the 51,800 level on the Dow as the key line for risk management. A clear break below this support would signal the peace trade is unwinding, prompting us to use put options to hedge long positions. Historically, markets often overreact to Fed news, so having downside protection in place before the announcement is a sound approach.
Should Chair Warsh manage a measured debut and the Dow remains above 51,800 post-announcement, the bullish trend is confirmed. A clean break above the 52,100 record opens up clear air with no overhead resistance. In this scenario, we would be comfortable holding long positions, but our discipline is to wait for this event risk to pass before adding new exposure.
