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The FOMC is at best on the sidelines for the balance of the year following five weeks of conflict-driven stagflationary pressure. The pace of Fed asset purchases will slide materially after this month, while the ECB, BOE, and BOJ are all likely to tighten policy.
A two-week ceasefire is obviously positive news and stocks will celebrate, but the SPX was struggling with the 6900-7000 level before the war — that's likely to be even stronger resistance now. The economy and Corporate America are going to grapple with fallout from the last five weeks for months, if not longer. Energy, commodity chemicals, and defense contractors will probably suffer aggressive profit-taking while consumer discretionary (including housing-linked names) should see the biggest rally. Hormuz will never go back to the way it was before — Iran's ability to shut the waterway will embed a risk premium in commodity prices for the foreseeable future.
• Trump announced at 6:30pm ET Tuesday that the US would suspend its bombing campaign against Iran for two weeks, contingent on Iran agreeing to the "complete, immediate, and safe opening" of Hormuz (media reports)
• Trump claimed the US has "met and exceeded" all military objectives and is "very far along" on a "definitive agreement" for long-term peace with Iran, calling Iran's 10-point plan a "workable basis" for negotiation
• Iran has approved the two-week proposal according to media reports, with Tehran issuing a celebratory response claiming it forced Washington to accept its plan; Israel will abide by the ceasefire in both Iran and Lebanon
• The US and Iran will hold negotiations starting Friday in Islamabad with difficult topics including enrichment, nuclear material, missiles, reparations, Hormuz tolls, proxy groups, and sanctions (Axios)
• The outcome resembles an "Iraq I scenario" requiring enhanced US military presence in the Middle East for years to contain Tehran — much better than an "Iraq II" multi-year quagmire
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