Trump makes the stock market a front in the Iran war

Since President Donald Trump launched a war against Iran in late February, the U.S. economy has absorbed a series of escalating shocks. Gas prices have soared nearly 40% to more than $4 a gallon. Brent dated crude — the physical oil that refineries actually buy — soared this week to $141 a barrel, the highest level since the 2008 financial crisis. At the same time, institutions from Vanguard to the Federal Reserve Bank of Atlanta raised their inflation expectations and revised down their growth estimates, with the Fed’s GDP gauge falling from 3% in early March to just 1.6% on Thursday.

While the economic effects have already been profound, they have failed to capture headlines like the stock market has. Increased volatility, with presidential pronouncements moving trillions of value, may represent something truly new: the market itself is being treated as a quasi-front in the war.

Take the events of Monday March 23.

Around 7 a.m., Trump posted to Truth Social, claiming “very good and productive conversations” between the United States and Iran that were leading to a “complete and total resolution of our hostilities.” In just a few minutes, the S&P 500 index jumped 2.6%, adding about $2 trillion to the market capitalization. Oil plunged. The Dow Jones looked ready to open up 900 points.

By around 8 a.m., Iran’s Foreign Ministry had issued a categorical denial, calling Trump’s claims “psychological warfare” and saying there had been no direct or indirect contact with the president. About $1 trillion of the morning’s gains have evaporated. Total market swing: $3,000 billion in a few hours, triggered by a social media post that Iran quickly contradicted. The sheer volume of algorithmic trading in the US market has likely amplified the dynamic, with programs run based on sentiment analysis likely accounting for a significant portion of the overall volume.

This week, Iranian officials upped the ante by trolling Trump on social media, with Parliament Speaker Mohammad-Bagher Ghalibaf posting this business advice to US investors on X $TWTR: “Pre-market so-called ‘news’ or ‘truth’ is often just a setup for profit,” he wrote. “Basically, it’s an inverse indicator. Do the opposite: If they pump it, short it. If they drop it, go long.”

From there, the information war only intensified. On Thursday, Ghalibaf released a poll asking whether he should “name a handful of bankers and hedge funds” who he says are profiting from war politics, complete with apparent taunts directed at hedge fund manager Bill Ackman, who is often treated as a pretender to the throne in financial circles: “Ackman here: invitation lost?

This is absurd, and it is also a signal. The Iranian president’s posts have garnered millions of views and, at least in the very short term, his investment advice could have proven profitable, as betting against Trump’s claims about Iran last week – for example by betting on rising oil prices or heavily shorting the US market – would have made money.

Regardless, the spectacle of an enemy official succeeding in inciting American investors against their own government’s statements represents something unprecedented in the annals of war.

The vulnerability that Ghalibaf both mocks and exploits is Trump’s own credibility. Major news outlets were quick to publish articles suggesting that Trump’s claims about negotiations with Iran were false, in whole or in part.

The Wall Street Journal first reported that what Trump described as “very good and productive conversations” were actually preliminary messages delivered through Middle Eastern intermediaries, with no direct contact between the United States and Iran and Arab mediators privately expressing skepticism about reaching a deal. The New York Times then delivered the fatal blow, revealing that several US intelligence agencies believe that Iran “is not currently prepared to engage in substantive negotiations” and that the two countries “are not in negotiations on the terms of a cease-fire or an end to the war.”

If Trump hadn’t treated the market as a quasi-war front, the battle might never have happened there, or maybe not as directly.

“You can announce peace, but if it doesn’t happen, the effect will be reversed,” said Igor Pejic, author of the upcoming book Tech Money and an expert on modern market dynamics, in an interview with Quartz.

What we’re seeing today is “a classic wartime cycle of volatility amplified by real-time presidential signals,” Pejic said. “Yet, while not entirely new, this time we see the conflict unfolding in a much more extreme and rapid manner than in past conflicts” – driven by “today’s information environment” where “extraordinary weight is placed on the president’s words.”

The danger is that “markets become about Trump rather than fundamentals. This increases volatility and creates whiplash,” Pejic said, while rewarding “those with real-time access to signals while punishing long-term fundamental investors.”

The other danger is “premature and repeated optimism (e.g. ‘very comprehensive’ or ‘two to three weeks’ prior comments that have not materialized and have not been clearly supported)”, breeding cynicism and sowing distrust so that “investors begin to ignore official statements, which can delay true price discovery when real news arrives.”

It is also possible that the adversary – Iran, in this case – will attempt to exploit this distrust.

“The overall integrity of the market is not broken but the signal-to-noise ratio is deteriorating,” Pejic said.