23.09.2026 - Hope, Hope and a Short Squeeze
Financial markets have been driven by one powerful force over recent days: hope.
Hope for improving oil flows. Hope for diplomacy in the Middle East. Hope for progress toward ending the Russia–Ukraine war. And increasingly, renewed hope surrounding the AI story.
The most tangible development came from the Middle East. US and Iranian representatives held three hours of talks in New York, with President Donald Trump describing the discussions as “very good.” Further talks appear possible, reviving expectations of a diplomatic off-ramp. Iran, however, continues to insist on conditions for ending the conflict and reopening the Strait of Hormuz.
At the same time, Saudi Arabia has restarted its East-West pipeline, which allows crude to reach the Red Sea while bypassing the Strait of Hormuz. Operations have resumed at a reduced rate, while a return to full capacity could still take several weeks.
These developments have been enough to trigger a sharp correction in oil prices and fuel optimism across financial markets.
Meanwhile, hopes — and perhaps some fantasies — surrounding AI have started to rebuild as well, adding another layer of momentum to technology stocks.
Markets:
Equities: recent strong performance, mainly in Tech sector comes to a halt
Bonds: yields little changed to the upside - US 2y yield above 4.79%, US 10y yield above 4.99%, Japan 10y yield 2.99%
Commodities: Oil prices rising slightly after sharp correction, WTI at USD 90/barrel and Brent around USD 100/barrel;
Precious metals prices continue to move lower, gold USD 4’305/oz, silver USD 65/ozCurrencies: US dollar moving higher - Japanese Yen unchanged USDJPY 158
Cryptos: Strong falling after strong rally - Bitcoin above USD 85k
Volatility: The VIX index remains below 15 (good level for hedging!)
My View: The magnitude of the rally over recent days, pushing the Nasdaq back to an all-time high, surprised me.
In my view, the move can partly be explained by a short squeeze and technical buying as positive momentum accelerated, rather than by a comparable improvement in underlying fundamentals. I continue to see little fundamental justification for such a strong move higher in equities.
There remains an important distinction between hope and reality.
One of the main catalysts has been the sharp decline in oil prices, largely driven by hopes that oil flows will improve materially. Saudi Arabia restarting its East-West pipeline is a positive development, but the broader supply situation remains fragile. The Strait of Hormuz remains severely disrupted, major differences between the US and Iran remain unresolved, and alternative supply routes remain vulnerable to further attacks.
At the same time, bond yields have fallen only marginally. With the US 10-year yield still close to 5%, pressure from elevated financing costs has not gone away.
Positioning has likely played an important role as well. Since the Fed’s rate hike last week, investors positioned for weaker equity markets, including myself, have repeatedly been caught on the wrong foot in the recent days, forcing some to cover short positions and adding further momentum to the rally.
And then there is AI. Optimism has returned remarkably quickly, yet I continue to question how extraordinary capital spending, extremely optimistic growth assumptions, rising safety concerns and intense global competition can ultimately justify current valuations.
For now, markets appear to be trading on hope, momentum and positioning rather than a meaningful improvement in fundamentals.
The key question is whether fundamentals will catch up with that hope, or whether markets will have to catch up with reality.
It is only a matter of time before markets adjust to reality. When they do, they are likely to overshoot in the opposite direction.
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