Market Mondays: Markets stuck in a familiar cycle as geopolitics and momentum collide

Markets are once again caught in a familiar pattern, where headline-driven volatility masks a much stronger underlying trend. Over the past 24 hours, the narrative has flipped yet again, with reports that the US has rejected Iran’s latest proposal for peace talks. That has been enough to push oil higher and reintroduce some risk aversion at the margins, but the broader market reaction has been notably contained.

Brent Crude daily chart

Past performance is not a reliable indicator of future results.

This back-and-forth dynamic has become a defining feature of recent weeks. Constructive headlines around negotiations are quickly followed by setbacks, creating short bursts of volatility without fundamentally altering the trajectory of markets. Despite the deterioration in talks, the ceasefire itself remains in place, and that appears to be enough for investors to maintain a relatively optimistic stance. In essence, markets are reacting to the direction of headlines, but pricing a longer-term outcome where the conflict ultimately de-escalates.

The technical backdrop reinforces this view. US equities, particularly the Nasdaq 100, continue to show exceptionally strong momentum, with prices pushing higher despite increasingly stretched positioning. The speed of the rally — with momentum indicators in overbought territory — suggests that this is as much a positioning and sentiment-driven move as it is a fundamental one. There is a clear element of FOMO at play, with investors reluctant to step away from a market supported by strong earnings and improving profit expectations.

Nasdaq 100 daily chart

Past performance is not a reliable indicator of future results.

Those fundamentals remain the key anchor. Earnings season has delivered robust growth and rising margins, particularly in the US, helping to justify elevated valuations. At the same time, valuations are not yet at extremes, which gives markets room to absorb some volatility without triggering a broader repricing. This helps explain why equities have been able to look through geopolitical noise, even as oil remains elevated.

However, this creates a fragile equilibrium. Markets are effectively pricing a scenario where geopolitical risks do not escalate meaningfully, earnings remain strong and policy stays predictable. That leaves little margin for error. Any meaningful deterioration in negotiations, or a sustained increase in energy prices, could quickly challenge the current positioning.

Another key focus this week will be the US CPI release, which has the potential to challenge or reinforce the current narrative. Markets will be watching closely for signs that the recent energy shock is feeding into broader inflation, particularly through core and “supercore” measures. A benign print would support the view that inflation remains under control and allow equities to extend gains. However, a stronger-than-expected reading could push yields higher, strengthen the dollar and test the resilience of risk assets, especially given how stretched positioning has become.

In the near term, the focus may shift back toward geopolitics. With fewer economic data releases this week, markets may be more sensitive to political developments, particularly around the Strait of Hormuz. While the broader trend remains intact, the risk is that volatility could increase if the narrative shifts again.

For now, the dominant theme remains unchanged: markets are trading momentum and probabilities rather than certainty. The bias is still toward optimism, but it is an optimism that depends heavily on things not getting worse — and that makes the current setup inherently unstable.