Unless U.S. President Trump extends his ultimatum to Iran once again, the conflict with Iran is likely to escalate further in the coming hours and days. Iran does not appear willing to comply with the U.S. demand to open the Strait of Hormuz. According to the latest news, the Iranian government has even responded by completely cutting off communications. Much therefore suggests that the feared escalation is likely to occur.
The oil market has already reacted to this development with a further price surge. In our annual outlook for 2026, we outlined five unexpected developments—including the comeback of the oil price. In our thoughts from March 4, we also pointed out the high correlation between gold and oil prices, with the oil price tracking the gold price with a lag of about 20 months. At first, it did not look as though this chart would be confirmed again. In the meantime, however, the oil price is indeed well on its way to closing the resulting spread.
That the oil price will indeed continue to follow the gold price with a 20-month lag is by no means set in stone. The news flow—and especially its gloomy tone—would suggest such a development. Yet the financial markets seem to have a mind of their own on this matter. Yes, the spot price on the oil market has risen sharply since the start of the year. However, an analysis of the futures markets and the various maturities reveals a significantly more nuanced picture: While the spot price of WTI crude has nearly doubled to USD 115 over the past three months, the 12-month forward price stands at just USD 72. The market is essentially telling us nothing other than that it expects the oil price to be around 40% lower in twelve months.
Of course, one could now argue that the financial markets are completely misjudging the situation surrounding the war with Iran. That is always possible. But then one would also have to admit that one is apparently smarter than all other participants in the oil market. The financial markets simply reflect the collective knowledge of all participants—and not merely a single opinion.
But instead of philosophizing about exactly how prices are formed, we can examine whether the market provides other indicators confirming that the situation may be less negative than the news flow—and with it, sentiment—suggests.
Clearly, the long-term General Sentiment Indicator has already fallen deep into negative territory. Paradoxically, this is precisely where its positive significance lies: sentiment is already so poor that a large portion of the negative factors is likely already priced in. The indicator has now also fallen to a level similar to that seen during past lows of the S&P 500 Index.
The picture is similar for the General Sentiment Indicator based on short-term inputs. Recently, however, it appears to be signaling that sentiment is improving again. And we all know what actually always happens in the stock markets as soon as sentiment brightens…
The S&P 500 Index’s direct sentiment barometer also provides initial indications that sentiment has not deteriorated further recently. Here, too, the situation could gradually brighten.
Impressive—and likely surprising to many market participants—is the trend in the ratio between cyclical and non-cyclical stocks. Investors typically buy non-cyclical stocks when they want to reduce risk and take a more defensive position. However, the ratio now shows that investors have recently preferred cyclical stocks. But they only do so when they are convinced of an economic upswing… This doesn’t fit at all with current global geopolitical events. But the market’s message is remarkably clear.
According to a recent analysis, Bitcoin’s price trend is also a good indicator of liquidity —and ultimately of investors’ risk appetite. In recent years, many crypto investors have been convinced that these assets represent an alternative when it comes to managing risk. That may well be true in one form or another. However, developments over the past few months have tended to show that they are primarily a reflection of market liquidity. That is precisely why they are also a useful indicator for the rest of the financial markets, particularly for the stock markets.
Liquidity is the lifeblood of any market rally. When it becomes scarce, stock markets come under pressure. In fact, a comparison between the price movements of the Dow Jones Industrial Average and Bitcoin reveals a high correlation. One even gets the impression that Bitcoin, with its price decline since the fall, has already anticipated the stock market correction. And this is not the first time.
Even though we are showing the comparison with the Dow Jones Industrial here, the comparison with the Nasdaq Index is even more striking. The Nasdaq Composite’s most recent all-time high was reached at the end of October 2025. This makes perfect sense, as typical Nasdaq stocks, unlike many Dow Jones stocks, do not pay dividends or are of a more speculative nature.
Central banks are, of course, primarily responsible for market liquidity. A comparison of global M2 money supply trends with the S&P 500 Index confirms that a correlation exists—provided M2 is given a three-month lead time. It takes some time for new liquidity to be invested and thus have an impact on financial markets. The positive message from this chart: The money supply has recently risen again, which should be a positive signal for equity investors.
Incidentally, the positive message regarding liquidity trends also applies to crypto investors, who have recently been through such a tough time: The expansion of global M2 should actually lead to cryptos soon completing their correction phase.
Back to the stock market. Smart Investors Action shows us how smart investors with deep pockets are behaving. The light blue area indicates whether they are distributing or accumulating. After a phase in which they reduced their investments, they are now accumulating heavily again: the blue area is pointing upward once more…
We are therefore seeing sufficient long-term indications that the stock market is not facing a sustained correction, but rather a potentially impressive rally. Of course: A potential escalation in the Iran conflict in the coming hours could once again trigger a violent reaction in the financial markets. But accumulating rather than distributing should currently be the prevailing view.
