NextFin News - Global institutional investors are aggressively rotating back into U.S. Treasuries and artificial intelligence stocks as the geopolitical premium associated with the 2026 Iran conflict begins to evaporate. The shift follows a pivotal address by U.S. President Trump, who signaled that the most intensive phase of military operations is nearing its conclusion, prompting a sharp reversal in the "fear trade" that had dominated markets throughout March.
The benchmark 10-year Treasury yield, which had spiked as investors braced for a prolonged energy crisis, retreated toward 4.2% this week. Simultaneously, the Nasdaq Composite has begun to claw back ground after entering a technical correction in late March. The recovery is being led by the "Magnificent Seven" and specialized AI hardware providers, which saw their valuations compressed to multi-year lows during the height of the regional instability. Nvidia, for instance, saw its forward price-to-earnings ratio dip to 19 in late March—its lowest level since 2019—before the current wave of dip-buying commenced.
The de-escalation narrative gained momentum after reports surfaced that Iran and Oman are drafting a protocol to monitor traffic in the Strait of Hormuz, a move seen by analysts as a critical step toward stabilizing global oil flows. U.S. President Trump’s projection that the conflict would enter a "cleanup phase" within two to three weeks has provided the clarity that asset managers were seeking to redeploy cash piles that had reached record levels during the first quarter.
However, the enthusiasm is not universal. Some macro strategists warn that the pivot may be premature. While the immediate threat of a total blockade of the Hormuz Strait has diminished, the structural damage to regional infrastructure and the long-term inflationary impact of the war’s initial energy spike remain unresolved. According to data from ADP, private sector hiring in the U.S. remained resilient at 62,000 in March, suggesting that the Federal Reserve may not have the "inflation cover" it needs to cut rates as quickly as the bond market is currently pricing in.
The divergence in sentiment is particularly visible in the tech sector. While big funds are piling back into AI names on the premise that secular growth remains intact regardless of the geopolitical backdrop, skeptics point to the 8% slump in the S&P 500 tech sector over the past month as evidence of a fragile recovery. The current rally is largely a "relief trade" rather than a fundamental reassessment of earnings potential, which will be tested as the first-quarter reporting season begins later this month.
For now, the market’s focus has shifted from the theater of war back to the Federal Reserve’s reaction function. With the 2-year Treasury yield hovering around 3.8%, the fixed-income market is betting on a return to normalcy. Yet, as long as the "cleanup phase" mentioned by U.S. President Trump continues, the risk of a secondary flare-up remains a tail risk that could easily send yields back toward their March peaks and derail the nascent recovery in high-growth equities.
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