S&P 500 Rises 0.5% as Gold Surges 3%, Oil Dips on Iran Peace Plan, Treasury Yields Tumble, Private Credit ‘Zero-Loss Fantasy’ Ends

Georgi Kuzmanov Senior Equity Analyst & Founder

Wall Street extended its cautious rally on Wednesday, with the S&P 500 gaining 0.55% as investors processed a flurry of conflicting signals from the Middle East, a powerful gold rally, falling Treasury yields, and a second consecutive weak Treasury auction. The session's dominant theme was hope — hope that the Iran war might be approaching a diplomatic off-ramp — even as the evidence remained decidedly mixed.

The Dow added roughly 310 points to close near 46,427, the Nasdaq gained 0.66%, and the Russell 2000 surged 1.26%, outperforming large caps for a third consecutive session. Gold was the day's standout performer, with futures jumping more than 3% to $4,552 as falling oil prices eased inflation fears and Goldman Sachs reiterated a year-end target of $5,400. Oil moved in the opposite direction: Brent settled at $102.22, down 2.17%, and WTI fell 2.2% to $90.32 after Iran announced overnight that it would permit passage through the Strait of Hormuz for "non-hostile" vessels.

The Treasury market delivered the session's clearest vote of confidence. The 10-year yield fell 7 basis points to 4.322%, the 2-year dropped more than 5 basis points to 3.883%, and the 30-year retreated 4 basis points to 4.891% — pulling back from last week's flirtation with 5%. Investors parsed a set of still-murky diplomatic developments: Iran confirmed it had received Washington's 15-point peace proposal but immediately rejected it, countering with a five-point plan of its own that includes Tehran's sovereignty over the Strait of Hormuz. Trump, for his part, repeated from the Oval Office that the two sides are "in negotiations right now." Iran's military denied it, saying "no one like us will make a deal with you. Not now. Not ever."

Closing Scoreboard

Gold's Best Day in Weeks

Gold was the session's standout trade. Futures surged more than 3% to $4,552.30, the metal's strongest single-day advance in weeks, as falling oil prices eased the inflation anxiety that had been crushing the precious metal throughout March. Gold remains roughly 17% below its late-January peak of approximately $5,594, but the reversal felt meaningful.

The catalyst was straightforward: with Brent dropping below $103 on the Hormuz passage announcement, the market's inflation calculus shifted. Lower oil reduces the risk that the Fed will be forced into a more hawkish stance, which in turn lowers the opportunity cost of holding non-yielding gold. Goldman Sachs co-head of commodities research Daan Struyven told media on a briefing call Wednesday that the recent gold pullback was "not surprising" given higher rate expectations and market volatility, describing part of the correction as "a bit of normalization." Goldman maintained its $5,400 year-end gold target, underpinned by continued central bank buying as countries diversify into assets with "lower geopolitical and financial risks."

The dollar index slipped 0.17% as Treasury yields fell, providing an additional tailwind. After weeks of forced liquidation — investors selling gold to meet margin calls elsewhere — the metal appears to be finding a floor. Whether it holds depends entirely on Friday's PCE inflation data and, more immediately, on whether the Iran diplomatic signals produce anything concrete.

Treasury Yields Fall: Bonds Bet on De-Escalation

The Treasury market rallied sharply on Wednesday, unwinding much of Tuesday's selloff that followed the weak two-year auction. The 10-year yield dropped 7 basis points to 4.322%, the 2-year fell more than 5 basis points to 3.883%, and the 30-year retreated to 4.891% — backing away from the psychologically critical 5% threshold.

The catalyst was Iran's overnight announcement that "non-hostile vessels belonging to or associated with other countries, provided they do not participate or cooperate in the aggressive operations against Iran and comply with the declared safety and security rules and measures, may benefit from safe passage through the Strait of Hormuz." While the language was heavily conditional and the practical implications unclear, markets read it as the first tangible concession since the blockade began nearly four weeks ago.

But the bond market's optimism was tested in the afternoon. The Treasury's $70 billion five-year note auction came in weaker than expected, making it the second disappointing sale this week after Tuesday's dismal $69 billion two-year offering. Demand remains thin for government debt during a period of elevated oil-driven inflation risk, even as yields decline on geopolitical headlines. Thursday's seven-year auction will complete the week's trifecta of mid-curve supply — and if that, too, disappoints, it could cap the rally in bonds and put upward pressure on rates ahead of Friday's PCE report.

Oil Falls, but the Supply Picture Remains Tight

Oil prices dropped on Wednesday as Iran's conditional Hormuz passage offer gave traders a reason to take profits. Brent settled at $102.22 per barrel, down 2.17%, and WTI fell 2.2% to $90.32. The moves were modest compared to Monday's 10% crash, suggesting the market is settling into a new range rather than pricing in a resolution.

Iran's offer to allow "non-hostile" ships through the strait was the proximate trigger, but the language left enormous room for interpretation. Which nations qualify as non-hostile? Who determines compliance? The practical effect is that major oil tanker operators are unlikely to test the passage without clearer guarantees and insurance coverage — meaning physical supply disruption continues even as headline risk moderates.

Goldman Sachs' former CEO Lloyd Blankfein warned on CNBC Wednesday that the fallout from the Iran war "is going to last" even if "there's a resolution tomorrow," noting that supply chains, insurance markets, and capital allocation decisions have already been permanently altered by the three-week conflict. The EPA moved to waive gasoline regulations in an effort to address surging fuel prices, an acknowledgment that the administration views the energy shock as a political liability heading into summer driving season.

Private Credit: The 'Zero-Loss Fantasy' Ends

CNBC published a detailed analysis on Wednesday headlined "Private credit's 'zero-loss fantasy' is coming to an end," capping a week in which the $3 trillion sector's stress moved from the financial pages to mainstream news. The piece cited Morgan Stanley's warning that default rates in private credit direct lending could surge to 8%, well above the 2-2.5% historical average, with pressure concentrated in sectors vulnerable to AI disruption — particularly software, which represents an estimated 26% of direct lending exposure.

Raymond James' global head of private capital advisory, Sunaina Sinha Haldea, described the potential default spike as "painful for some funds but healthy for the asset class if it forces better underwriting and more realistic valuations." Barclays' Brad Rogoff emphasized the need to distinguish between investment-grade and sub-investment-grade private debt, noting that sub-IG credit typically involves more "extreme" leverage and is concentrated in the U.S.

The practical fallout continues to build. Apollo, Ares, Blackstone, Blue Owl, Morgan Stanley, and Cliffwater have all either capped redemptions or disclosed elevated withdrawal requests. UBP's Nicolas Roth called the current wave "the first real liquidity test for the asset class at scale," adding that the adjustment period "will separate strong platforms with structural liquidity buffers from weak platforms relying on subscription momentum to finance exits."

Sector Breakdown

Mega-Cap and Notable Movers

Corporate News

• SMCI, Dell, HPE surge on AI server demand: Super Micro Computer jumped 8.19%, Dell rose 4.01%, and Hewlett Packard Enterprise gained 7.87% as investor appetite for AI infrastructure names revived. The trio's combined rally marked the strongest showing for the enterprise AI hardware complex since early March, suggesting the rotation away from software and into physical infrastructure is accelerating.
• JetBlue surges 13% on merger talk: JetBlue Airways shares jumped 13.37% — turning positive for the year — after reports surfaced of renewed merger interest. The airline has been an acquisition target candidate since its failed Spirit Airlines deal, and the Iran war's impact on fuel costs has put pressure on smaller carriers to find scale.
• Microsoft's worst quarter in 17 years: MarketWatch published a deep analysis of Microsoft's stock decline, noting the company is on pace for its worst quarterly performance since 2009. Shares fell another 0.46% on Wednesday to $371.04. Concerns center on Azure cloud spending deceleration and whether the company's massive AI capex is generating adequate returns. The stock is now down roughly 14% from its February highs.
• SpaceX IPO filing reportedly imminent: CNBC reported that SpaceX could file for its IPO as early as this week, at a potential valuation of $1.75 trillion. The listing would be the largest technology IPO in history and would create a new liquid mega-cap for investors to allocate toward. Pre-IPO fund demand has surged since the filing reports first emerged.
• EPA waives gasoline regulations: The Trump administration waived certain EPA gasoline blending regulations to address surging fuel prices, effectively allowing cheaper summer-blend fuel to reach markets earlier. The move is politically motivated but practically significant — it could shave 5-10 cents per gallon at the pump during peak demand months.
• Lloyd Blankfein warns Iran fallout "will last": Goldman Sachs' former CEO told CNBC that even a resolution tomorrow would not undo the structural damage the Iran war has inflicted on energy supply chains, insurance markets, and corporate capital allocation. The warning underscored why oil prices have remained elevated even as diplomatic language softens.
• Private credit gating continues: Ares Management confirmed it capped redemptions on its $10.7 billion Strategic Income Fund at 5% after 11.6% of assets requested withdrawal. This follows Monday's similar disclosure from Apollo. Blue Owl and Cliffwater have also restricted redemptions in recent weeks.
• Consumer confidence data released: The Conference Board's consumer confidence index was released Wednesday morning and came in below expectations, reflecting the cumulative weight of the Iran war, elevated gas prices, and the partial DHS government shutdown now in its sixth week. Details pointed to rising pessimism about the labor market and business conditions over the next six months.

Economic Data

Wednesday's data slate included consumer confidence, new home sales, and the $70 billion five-year Treasury auction. Consumer confidence disappointed, consistent with the morning update's S&P Global flash PMI reading from Tuesday that showed U.S. business activity at an 11-month low. The housing data reflected continued pressure from elevated mortgage rates, with new home sales coming in soft as builders grapple with construction cost inflation driven partly by the oil shock's impact on materials and transportation.

The five-year Treasury auction was the session's most anticipated event, and it disappointed for the second consecutive day. Following Tuesday's weak two-year sale — which recorded the lowest bid-to-cover ratio since March 2025 — the five-year auction showed similarly tepid demand, suggesting that institutional investors remain reluctant to commit to government paper with oil-driven inflation uncertainty unresolved and PCE data looming on Friday.

The economic calendar thickens from here: Thursday brings durable goods orders and weekly jobless claims, followed by the crucial trifecta of PCE inflation, Q4 GDP revision, and the University of Michigan consumer sentiment final reading on Friday. The PCE report is the week's main event — and the data point most likely to determine whether this week's cautious rally extends into month-end or reverses sharply.

The AlphaEdge Take

Wednesday was one of those rare sessions where almost everything went right simultaneously: stocks up, gold up, yields down, oil down, small caps outperforming. On the surface, it looked like the market pricing in the beginning of the end of the Iran crisis. But peel back a layer and the picture is far more nuanced.

Start with the diplomatic reality. Iran received Washington's 15-point peace proposal and immediately rejected it, countering with a five-point plan that includes sovereignty over the Strait of Hormuz — a non-starter for the United States and its Gulf allies. The "non-hostile vessels" passage offer was more meaningful, representing the first tangible concession Tehran has made since the blockade began. But the language was so heavily conditioned that no major tanker operator is going to test it without clearer terms and insurance coverage. The physical oil supply disruption continues. What the market is pricing is a direction of travel, not a destination.

Gold's 3% surge was the most telling trade of the day. After weeks of being crushed by rising rate expectations and margin-call liquidation, the precious metal found a bid as oil's decline eased inflation fears. Goldman's $5,400 year-end target — roughly 19% above current levels — is predicated on continued central bank buying and geopolitical diversification demand that exists independently of the Iran war. If oil continues to moderate, gold has room to recover a significant portion of its 17% drawdown from January's highs. If the war re-escalates and oil spikes back above $110, gold will likely resume selling as rate-hike fears resurge. It is a binary trade masquerading as a safe haven.

The private credit story is now officially mainstream. When CNBC runs a headline about the "zero-loss fantasy" ending and Morgan Stanley warns of 8% default rates, we have moved past the "known by a few" phase into the "priced by the market" phase. That is actually healthy. The worst outcomes in credit markets tend to happen when risk is hidden, not when it is on the front page. Raymond James' Haldea was right to call a default normalization "painful but healthy" — the asset class grew too fast, with too little scrutiny, during the low-rate era. The oil shock simply accelerated a reckoning that was coming regardless.

What concerns us is the disconnect between equity market optimism and bond market caution. Stocks gained on the assumption that Iran de-escalation will reduce inflation and pave the way for rate cuts. But back-to-back weak Treasury auctions — the two-year and five-year — tell you that the people who actually lend money to the government are not yet convinced. If Thursday's seven-year auction is similarly soft, and Friday's PCE comes in hot, the bond market will reassert itself and equities will have to recalibrate.

The path from here runs through three gates in the next 48 hours: Thursday's seven-year auction and durable goods data, then Friday's PCE inflation report. A benign PCE reading (core at 0.2% month-over-month or below) combined with even a hint of tangible Iran diplomatic progress could send the S&P 500 back toward 6,600 and gold toward $4,700. A hot PCE print (0.4% or above) paired with an Iranian rejection of talks would snap the rally, push the 30-year yield through 5%, and put the oil trade firmly back in the driver's seat. We are leaning cautiously optimistic but holding cash. The market is pricing in a resolution that has not happened yet — and in geopolitics, the gap between hope and reality is where portfolios get hurt.