Wall Street banks on an unpopular Iran war pushing Trump to de-escalate soon

Wall Street sees a reason for President Donald Trump to try to resolve his war with Iran: political disapproval. Crude oil has soared (Brent is more than 50% higher), and stocks and bonds have dropped since the U.S. began its weekslong war with Iran. A growing chorus of investors now believe Trump is likely to ratchet down the conflict as his presidential approval numbers take a hit and November’s midterm elections near. “We reckon that the financial markets are discounting the prospect that Trump will soon declare victory and claim that the war is over,” Yardeni Research president Ed Yardeni told clients on Friday. “A prolonged war could cost the Republicans their majorities in Congress.” .SPX 1M mountain S & P 500 over the past month Polling on Trump’s economic performance hit new lows for his second term, according to data cited by Bank of America investment strategist Michael Hartnett in a Thursday note. That provides a “big incentive” for Trump to de-escalate the war, he said. A poll out Friday from Politico showed 43% of Americans supporting the war. Fifty-three percent of voters opposed U.S. military action against Iran in a Quinnipiac University poll released last week. As a result, Trump is likely to make a near-term declaration of “victory” in the war, said Deutsche Bank’s Maximilian Uleer. “Higher rates, higher gasoline prices and limited support for the war more broadly are weighing on the Republicans’ prospects of winning the midterm elections,” Uleer, the bank’s head of European equity and cross asset strategy, wrote to clients in a recent note. Prediction market bettors increasingly expect the Democrats to win the midterms, which alone could further pressure Trump to change course, Uleer said. Odds of Democrats taking control of the House have jumped to around 80% from roughly 66% six months ago, while the chance of retaking the Senate is up to around 50% from roughly 30%, according to Kalshi. The S & P 500 has dropped more than 4% in March as oil prices surged, worrying investors that corporate profits will come under pressure and consumers will curtail spending. The Dow Jones Industrial Average is on track for its fourth straight losing week, a first since 2023. The two-year Treasury note yield is 3.88% Friday vs. 3.38% before the war. Stocks might be lower still were it not for the potential for Trump to de-escalate. Uleer at Deutsche Bank said the equity market is already discounting higher energy prices. If Trump attempts to tamp down the war, Hartnett said investors should sell the U.S. dollar index above 100 and buy the 30-year Treasury , yielding 4.94% Friday, at yields close to 5%. He also recommended buying the S & P 500 below 6,600. The benchmark stock index traded as low as 6,539 at the worst levels of the day Friday. More worryingly, some investors are concerned that Trump won’t be able to walk back the U.S. war effort as easily as in the past, such as the tariff campaign last year. The Strait of Hormuz — a key passageway for 20% of global crude oil supplies — has been crippled since the conflict began Feb. 28, and it’s unclear how quickly flows will normalize or whether Iran would match any U.S. effort to lower the temperature.