The stock market's record rally now faces these two big risks

By Joy Wiltermuth

Investors will hear Tuesday from Fed chair nominee Kevin Warsh and face a Wednesday evening deadline on the Iran cease-fire

Investors face two big events this week that could rattle markets.

A touch-and-go situation in the Strait of Hormuz isn't the only risk facing investors this week.

There's also Tuesday's Senate confirmation hearing for Kevin Warsh, President Trump's pick to head the Federal Reserve, and Wednesday evening's cease-fire deadline between the U.S. and Iran.

With that, the stock market's rally to fresh record highs hit a stumbling block on Monday, as oil prices climbed and confidence around a swift resolution to the Iran war was tested.

Anxiety grew over the weekend after the U.S. military seized an Iranian cargo ship in the Gulf of Oman. That raised doubts about any official U.S.-Iran peace talks ahead of Wednesday's cease-fire deadline.

"Certainly, it's been a bit of a pivot from an encouraging trend of a broader de-escalation," said Brock Weimer, investment-strategy analyst at Edward Jones. Yet Monday's pullback has been orderly and modest, he told MarketWatch, and "investors are still expecting the broader trend to be de-escalation."

Stocks surged and oil prices plunged Friday after President Trump declared that the Strait of Hormuz was open. While now looking premature, the announcement helped the S&P 500 SPX and Nasdaq Composite COMP indexes to both close at record highs.

"From a headline perspective, the Middle East is going to continue to be a hot-buttoned issue," said Anthony Saglimbene, chief market strategist at Ameriprise. But he thinks another extension of the Iran cease-fire could be in the cards, despite Trump warning on Monday that such an extension would be "highly unlikely" if a deal isn't reached by his Wednesday deadline.

Another extension should help investors focus on positives for the market, like an upbeat tone around quarterly earnings and a U.S. economy that's still growing, Saglimbene said. Yet for markets to keep moving higher into fresh record terrain, he thinks there will need to be good earnings next week from the "Magnificent Seven" tech stocks and for the cease-fire to hold.

U.S.-traded West Texas Intermediate crude for May delivery (CL00) (CL.1) (CLM26) rose about 5.5% to $87.11 a barrel, while global Brent crude (BRN00) was 5.1% higher to $95.10. That's still well below peak levels this year.

"The probability of a prolonged conflict and oil prices surging back toward $100-plus a barrel has declined relative to where we were a month ago," said Edward Jones's Weimer.

Elsewhere in markets, Treasury yields BX:TMUBMUSD10Y were steady, although well off the year's lows, while Wall Street's "fear gauge," the Cboe Volatility Index VIX, was 8.1% higher at 18.89.

The VIX is a gauge of implied stock-market volatility over a roughly 30-day horizon. The S&P 500 on Monday eased back 0.2% from its record closing high of 7,126.06 set on Friday, while the Nasdaq fell 0.3% from its 24,468.48 record finish, according to Dow Jones Market Data. The Dow Jones Industrial Average DJIA was unchanged, off 1.5% from its record high in February.

This comes as investors brace to hear from Warsh, who in prepared remarks released ahead of his testimony indicated that the Fed must take responsibility for inflation to bolster the central bank's independence.

Read: Kevin Warsh's testimony to Congress is out early. He wants the Fed to 'stay in its lane.'

"It's definitely a high-tension situation," said Robert Tipp, head of global bonds at PGIM Fixed Income.

Warsh has been a critic of the Fed's inability to control price pressures since the COVID crisis. "It just so happens that the inflation situation has become much more aggravated," Tipp said, pointing to recent data moving further away from the Fed's 2% yearly inflation target.

Investors still seem fairly confident in the Fed's existing setup, where its 12-person group responsible for setting interest rates has shown little appetite to lower them - outside of Stephen Miran, the Fed governor with the closest ties to the Trump White House.

"I think the markets have priced in a Fed on hold, at least through the first half of this year," said Ameriprise's Saglimbene. The real test on Tuesday might be how Warsh talks about overseeing an increasingly divided Fed, he noted.

Current Fed chief Jerome Powell's term as chair expires in mid-May. Powell has said he'll stay on as "chair pro tem" if Warsh isn't confirmed by then.

The new Fed chief will take the helm just as the costs of the Iran war look likely to keep the U.S. debt and budget deficit growing.

Read: Trump expects his Fed chair nominee to cut interest rates. Here's how Kevin Warsh might try to do it.

-Joy Wiltermuth

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04-20-26 1646ET