Citadel Securities believes investors are underestimating the likelihood of a near-term agreement between the US and Iran that could reopen the Strait of Hormuz and trigger a broad-based rally across global markets, according to a report by Bloomberg.
In a client note, strategist Frank Flight said recent developments suggest a growing probability that tensions in the region may ease sooner than markets currently expect, paving the way for the resumption of normal shipping activity through one of the world’s most critical energy transit routes.
Among the indicators highlighted by Citadel Securities was a sharp recovery in Iran’s internet connectivity following months of disruption. Citing data from internet monitoring group NetBlocks, Flight noted that connectivity levels had rebounded to around 86% of pre-conflict norms, which he said may signal expectations within Tehran that hostilities are beginning to subside.
The note also pointed to the increasing public visibility of senior Iranian military officials as evidence that authorities may view the immediate threat of escalation or targeted attacks as diminishing.
“These factors, together with reports indicating progress in negotiations, suggest the possibility of an agreement emerging in the near term,” Flight wrote.
The comments come amid continuing uncertainty surrounding negotiations between Washington and Tehran. Despite reports of a fragile ceasefire framework and discussions around a potential 60-day memorandum of understanding, both sides have continued to accuse one another of breaches following recent US strikes on Iranian military targets.
Financial markets have reacted sharply to the shifting headlines in recent sessions, with moves in oil prices, equities and government bonds reflecting rapidly changing expectations around geopolitical risk and energy supply disruptions.
Citadel Securities estimates that a full reopening of the Strait of Hormuz before the end of July could have meaningful cross-asset implications. According to Flight, such a scenario could push 10-year US Treasury yields lower by more than 12 basis points, lift the S&P 500 by roughly 1.7%, and weaken the US dollar modestly.
The firm believes sectors including airlines, retailers and homebuilders could benefit most from easing energy costs and lower bond yields. Flight added that these areas of the market have lagged behind the technology-led rally tied to artificial intelligence investment trends and may outperform if investors begin rotating into more cyclical sectors.
In fixed income markets, Citadel Securities expects investors to reduce expectations for additional rate hikes from major central banks next year if geopolitical tensions ease rapidly.
However, the firm cautioned that any bond rally may prove temporary. Flight said resilient US economic activity, continued labour market strength and sustained AI-related capital spending could ultimately revive inflationary pressures and lead investors to reassess the longer-term interest-rate outlook.
“We think markets may be underpricing the inflation risk from an improving US labor market,” Flight said in the note.
