The DJIA set a fresh all-time intraday high on Monday, rising about 1% after a preliminary US–Iran peace framework pointed to the Strait of Hormuz reopening, the end of a US naval blockade and a 60-day extension of the ceasefire. Crude Oil fell, easing the energy-led inflation narrative, but the agreement remains unsigned and is scheduled to be inked on Friday in Geneva. Iran’s nuclear programme and the sequencing of sanctions relief were deferred to later negotiations, after previous ceasefire talks broke down; a two-week truce announced on 8 April drove a relief move of more than 2.5% in US equities before follow-up discussions in Islamabad collapsed and Washington imposed a blockade.
Economic data drew little reaction: the Empire State Manufacturing Index fell to 5.7 versus expectations near 14, while May Industrial Production rose 0.1%, and Retail Sales is due on Wednesday. Attention turns to the Fed decision at 18:00 GMT, the first FOMC meeting chaired by Kevin Warsh, with his press conference at 18:30 GMT. CME FedWatch implies roughly a 97% probability of no change, keeping rates at 3.50% to 3.75%, yet options markets price about an 80% chance of at least one hike by year-end. Technical markers include resistance near 51,950 and 52,000, with support around 50,800, the 50-period EMA near 49,850 and the 200-period EMA at about 47,900; Stoch RSI is near 49 and turning higher.
Market Reaction and Historical Context
We are looking at a market at all-time highs, pushed there by a preliminary peace agreement with Iran. This deal has cooled oil prices and inflation fears, which is what the market wanted to see. However, the agreement is not signed until Friday, leaving the rally on uncertain ground.
We’ve seen this script before where big announcements are made, only for the final details to be disappointing. Remember the April 8th ceasefire that sparked a rally before talks collapsed, or the trade deals in 2025 that ended up being less than advertised. This history suggests we should be cautious about Monday’s rally holding up.
The market’s reaction has crushed volatility, with the VIX dropping over 15% to 13.5, its lowest level since the first quarter. This makes options relatively cheap, presenting an opportunity to position for a potential surprise later this week. We believe this cheapness in volatility is underpricing the risk of either a hawkish Fed or a failed deal signing on Friday.
Key Catalysts and Risk Management
All eyes are now on the new Fed Chair’s first meeting this Wednesday. While no rate change is expected, his tone and the new economic projections are what will move markets. The key risk is if he leans hawkish to fight recent inflation data, which would directly challenge the easy-money assumption fueling this rally.
We see this as a setup to buy options that profit from a large price swing, regardless of direction. With the Dow sitting just under the key 52,000 level, a hawkish Fed could easily send it back towards 50,800. A confirmed dovish tone or a smoothly signed treaty could just as easily fuel a major breakout into fresh highs.
We are looking at two distinct catalysts this week, with Wednesday’s Fed meeting being the first test for this rally. Any positions we take should consider that even if we clear the Fed event, the headline risk surrounding the Friday signing in Geneva remains. This suggests holding some protection through the end of the week is a prudent strategy.
