US stocks diverged on Tuesday as investors weighed President Trump’s comments about the Iran war nearing an end against remarks from Defense Secretary Hegseth that the most intense barrage of strikes yet would occur on Tuesday

The Dow Jones Industrial Average (^DJI) and S&P 500 (^GSPC) lost roughly 0.1% and 0.2%, respectively, in the minutes after the opening bell. Moving in the other direction, the tech-heavy Nasdaq Composite (^IXIC) picked up roughly 0.1%.

Markets have soured on potential deescalation after reports that an oil tanker has exploded near Abu Dhabi. Oil prices fell late Monday after Trump said the US offensive in Iran was “very complete, pretty much,” remaining in the red by roughly 6%.

On the calendar, investors will get the February Consumer Price Index on Wednesday, followed by January’s Personal Consumption Expenditures index on Friday. Oracle (ORCL) is scheduled to report after the market close on Tuesday, while Adobe (ADBE) is on Thursday’s docket.

Investors are misreading how the Federal Reserve is likely to react to heightened oil prices, Bank of America economist Aditya Bhave said in a note published Tuesday morning.

The Iran war has scrambled the Fed’s rate calculus, with most observers suggesting that rising oil prices will push the Fed to be more hawkish. Rising energy costs, if sustained, put upward pressure on headline inflation. As inflation rises, the thinking goes, the Fed will be less likely to cut rates, fearing that it would risk overheating the economy.

Instead, Bhave said, “supply shocks create risks to both sides of the Fed’s dual mandate.” Instead, Bhave wrote, “Context matters. Compared to 2022, the labor market isn’t as hot, inflation isn’t as high, and fiscal support isn’t as large.”

Bhave noted that since the conflict began, the yield on two-year Treasurys — often taken as a read on expectations for the Federal Reserve’s policy rate over roughly the next two years — has largely tracked oil prices.

“This could be a mistake,” Bhave wrote, arguing that a supply shock “fattens the tails” of policy distribution and puts larger risks on both hikes and cuts.

“When Russia invaded Ukraine, the u-rate was below 4%, core PCE inflation was over 5%, payrolls were running at 500k/month and consumers were flush with Covid stimulus cash,” Bhave said. “By contrast, we now have a soft labor market, moderately elevated inflation and more modest fiscal support. This sets us up for a more dovish Fed response if the oil shock is persistent.”

Exxon (XOM) CEO Darren Woods to me (by phone)_ on the current situation in the oil industry:

“Obviously, the Middle East is a concentrated source of supply through the Strait of Hormuz, a narrow passage that much of the world supply has to travel through, and we’re seeing that play out here in real time. From a company standpoint, obviously, we’re very focused on making sure that the people that we have over there operating the JVs [joint ventures] in the different countries have been safely evacuated, and making sure that remains the case that our people are safe. And then I think more broadly, just with our operations around the world, everyone will be impacted. The markets are global. Prices are connected. Through that global marketplace, we’re making sure that we’re doing the work and have a diversified set of supply sources so that we can keep our operations up and running and continue to meet the demand of basically all the communities that we operate in.”

Oil prices remained in the red through early Tuesday morning after comments from President Trump on Monday evening suggesting that the war could soon come to an end.

Futures on international benchmark Brent (BZ=F) and US benchmark West Texas Intermediate (WTI) crude (CL=F) traded at roughly $87.90 per barrel and $89 per barrel, respectively, after the two products opened above $100 Sunday evening and popped to roughly $119, each.

In comments to CBS News, Trump said that he believes the war is “very complete, pretty much” and that the US is “very far” ahead of his estimated timeline. That said, in comments to House Republicans at a press conference Monday evening, the president said the US hasn’t “won enough” and that he “will not allow a terrorist regime to hold the world hostage and attempt to stop the globe’s oil supply.”

The president’s mixed comments underscored a conundrum for markets: Trump is signaling a near end to conflict, but his rhetoric alone won’t reopen the critical Strait of Hormuz, which remains essentially closed (though data shows very small amounts of crossings may have resumed).

Underscoring the precarity of the situation, Saudi Aramco CEO Amin Nasser said in comments on the company’s earnings call this morning that the Iran war is “the biggest crisis the region’s oil and gas industry has faced.” If the Strait is not reopened soon, he said, the consequences will be “catastrophic” for the global economy.

Two call-outs from Saudi Aramco (2222.SR) earnings out this morning.

One is from the Jefferies research team, noting this from the top oil exporter’s management: “All areas safe & operating normally, with Ras Tanura starting up following precautionary shutdown after drone interception.”

And this one from CEO Amin Nasser caught my attention on the earnings call. He was asked about how quickly the company could ramp up oil shipments once the Strait of Hormuz gets back to some form of normal:

“We can ramp up in days and not weeks, for sure.”

A new chart this morning from Goldman Sachs caught my attention with oil prices (CL=F, BZ=F) continuing to slide. It appears there is some oil making it through the Strait of Hormuz.