Investors really want to believe in fairy tales. Day by day, week by week, as the war in Iran grinds on, they display admirable optimism as a group, seizing on every hint or suggestion, no matter how flaky, that US President Donald Trump will back down, it’s going to be OK and we will all live happily ever after.
This is somewhat understandable. After all, 2026 was on track to be a very decent year for risky assets — more than decent in fact. The AI trade had its challenges, but the exuberance was still largely in play, interest rates were pointing lower, and US fiscal policy was expected to tickle the markets’ tummy. All the stars were aligned for a tip-top year before this war came along, and investors are itching to get back to normal, just as they did after the global tariffs farce a year ago. More than anything, they want to buy the dip.
Pick pretty much any trading day since the war started and you can see evidence of this dynamic. But the past week has been especially stark. On Wednesday, US stocks posted their best day in almost a year, jumping by nearly 3 per cent, and oil prices sank back under $100 a barrel, after the US president declared he would end the war “very soon”.