After the ceasefire news broke last week, the US stocks, bonds, and oil showed different trends—

U.S. stocks (red line) outperformed U.S. oil (green line), while U.S. bonds (blue line) underperformed U.S. oil.

To some extent, this trend reflects the votes of investors in the three markets on the direction of the US-Iran war:

1) The stock market is closest to liquidity. The market believes that the core of U.S. stock pricing is not in the Middle East, but in Washington.

So war is just an event; as long as risks are manageable, asset volatility will eventually be repaired.

2) Oil is closest to geopolitical risk. The market does not believe in verbal easing; the Strait of Hormuz is still there, and physical risks have not disappeared, which will continue to pose supply issues.

3) Bonds are the most interesting; they are closest to policy costs, betting on a more complex rate-cutting path.

Because of the current inflation challenges and fiscal pressures, it means that the U.S. now finds it difficult to pass on war costs as cheaply as before,

which may ultimately result in further compression of internal policy space in the United States.