Markets are trading a war like a probability tree, not a headline. With the fighting in the Persian Gulf still wide open, investors have been swinging between “merely bad” and “much worse” outcomes, and even small hints about shipping through the Strait of Hormuz have been enough to flip risk appetite in a hurry, as the range of scenarios stays unusually broad.
That dynamic showed up in Thursday’s price action: stocks opened sharply lower, then steadied after reports that Iran was drafting a protocol with Oman to manage ship traffic in Hormuz, a development traders read as at least a sign that commerce might keep moving. Oil stayed pinned above $110 a barrel even with the relief bounce, a reminder that the market is treating energy disruption as the central channel from geopolitics into growth and inflation, per hope for Hormuz lifting markets.
Then Friday morning delivered a second complication for rates: the U.S. labor market did not look like it was rolling over. The Labor Department reported the economy added 178,000 jobs in March, and the 10-year Treasury yield climbed to around 4.35 percent. In practice, that leaves investors trying to handicap two forces pulling in opposite directions: a war-driven oil shock that can push inflation up, and a still-resilient economy that makes it harder for the Federal Reserve to cut rates quickly, as Treasury yields rose after the report.
