The stock market’s rip higher may not signal the all-clear investors are looking for. The S & P 500 had its best day since May 12 on Tuesday, soaring 2.9%. That surge came after multiple reports said President Donald Trump was willing to end the U.S.’ campaign against Iran, potentially easing inflationary pressures from higher oil prices. Crude prices slid as well , while Treasury prices rose (pushing yields lower). However, investors may be overestimating how quickly inflation from the historic jump in oil prices will subside. “We expect soaring energy prices to push headline inflation to nearly 4% y/y in coming months,” wrote Bank of America economist Stephen Juneau. He added that “we now project price levels at the end of next year to be 50bp above our prior forecast, because of i) higher food inflation in 2027 due to ongoing fertilizer supply disruptions, and ii) lasting global supply chain problems.” Still, the hopes of an end to the war helped this week pare expectations for Federal Reserve rate hikes. The central bank is now fully expected to keep its overnight rate steady through year-end, per the CME Group’s FedWatch tool. At one point in March, traders were pricing around a 52% chance of a rate increase by the end of 2026. Fed Chair Jerome Powell also noted that inflation expectations were well anchored, adding that rate hikes aren’t needed at the moment . That said, crude prices remain elevated relative to where they were at the beginning of 2026. West Texas Intermediate futures traded around $57 per barrel when 2026 started. It now trades around $100 per barrel. Market volatility also remains elevated. The Cboe Volatility Index (VIX) is still around 25 despite Tuesday’s massive rally. UBS strategist Maxwell Grinacoff noted that markets are likely to react less to new headlines around the war, but added that “uncertainty persists.” “The return of a 2022-style volatility environment could introduce a very similar dynamic – a downward-trending market that becomes persistently more difficult to hedge as volatility and skew fails to realize, leaving investors stuck between a rock and a hard place,” he said. Technical strategists also expect the S & P 500 to move lower before moving back to a sustained upward trend.
