1. Islamabad Negotiation Breaks Down, Fundamental Disagreements Difficult to Bridge

From April 11 to 12, 2026, under Pakistan's mediation, the US and Iran held their highest-level face-to-face talks since 1979. Although there were reports of an "80% agreement," the negotiations ultimately collapsed.

The core disagreements centered on three points: first, the nuclear restriction timeline—US demands Iran suspend uranium enrichment for 20 years, Iran only agrees to 5 years, a 15-year gap; second, high-enriched uranium disposal—US requests all approximately 900 pounds of high-enriched uranium be shipped out of the country, Iran insists it remains domestically; third, the opening of the Strait of Hormuz—US demands immediate opening, Iran only agrees after a final peace agreement is reached, and also demands compensation from the US for damages caused by six weeks of airstrikes.

After the negotiations broke down, Trump immediately announced a "dual blockade" of the Strait of Hormuz, and US military deployments during the talks did not cease—over 15 US warships have been deployed to the Middle East, with the "Bush," "Lincoln," and "Ford" aircraft carriers forming a three-carrier battle group, and ground forces continuing to reinforce.

2. Energy Corridor Nearly Cut Off, Global Supply Chains Hit

The daily passage of ships through the Strait of Hormuz plummeted from about 130 before the conflict to just 6 ships per day in March, a decline of approximately 95%. Normal oil transportation is about 20 million barrels per day, now sharply reduced to 2-3 million barrels daily, mainly headed to China.

As a result, Brent crude futures surged from $80 per barrel to between $110 and $120, and Asian refined oil prices hit historic highs. JPMorgan estimates that over 60 Gulf energy infrastructure sites have been attacked by drones and missiles, with about 50 damaged and at least 8 facing long repair cycles, taking months to fix. The International Energy Agency's director, Birol, warned that the current energy crisis is "more severe than the combined crises of 1973, 1979, and 2022."

3. Monetary Policy in Dilemma, Rate Cut Expectations Near Zero for the Year

Current interest rate futures show that the rate cut in 2026 is only about 6 basis points, far below the approximately 55 basis points before the outbreak of hostilities. Goldman Sachs maintains expectations of a 25 basis point rate cut in September and December, but traders have largely priced out bets on rate cuts this year, with some even beginning to price in the possibility of rate hikes before the end of 2026. The CME model indicates market expectations for rate cuts have been pushed back to September 2027.

The Federal Reserve kept rates unchanged at 3.5% to 3.75% at the March meeting, with the dot plot showing only one rate cut for the year, but the number of officials supporting no rate hike increased from 4 to 7. However, long-term rates remain under pressure due to expanding fiscal deficits and persistent inflation expectations. To fund war expenses, the US government is seeking over $200 billion in additional budgets, with the 2026 fiscal year defense budget reaching about $900 billion. The 10-year US Treasury yield broke above 4.2% in early April, with upward pressure still present.

4. Stock Market Moves Independently, Valuations at Historic Extremes

The S&P 500 Shiller PE (CAPE) is currently about 40.6, the second-highest reading in over 140 years, only below 44.2 at the peak of the 2000 dot-com bubble. The PE ratio is around 30, PB about 5.56, and the equity risk premium (ERP) is -1%, meaning investors are bearing additional costs for risk, which is extremely rare in historical records.

Overall, the market is in a "calm before the storm"—everyone knows a conflict may break out, but everyone hopes for a truce. Under the dual pressures of high interest rates and oil crises, US stock valuations have reached levels last seen at the end of 1999, during the peak of the dot-com bubble, when the S&P PE was in single digits. Whether this severe disconnect between stocks, bonds, commodities, and forex markets can continue is highly debated. Historical experience suggests such situations often precede stock market errors. #美伊局势和谈与增兵博弈