S&P 500 Hits New ATH as US-Iran War Deal Awaits Donald Trump's Approval

The S&P 500 recorded an intraday gain of 0.58%, trading at 7,564.28 USD at press time. The Nasdaq Composite also hit a fresh record, advancing by approximately 0.6%, while the Dow Jones Industrial Average saw a modest increase. This positive momentum contributes to a strong run for US stocks, potentially marking the S&P 500's ninth consecutive weekly gain – its longest winning streak since 2023.

The proposed memorandum of understanding outlines a 60-day ceasefire extension to facilitate negotiations, with Iran reportedly agreeing not to pursue nuclear weapons. In return, the US would discuss sanctions relief and the release of frozen Iranian funds. Crucially, the framework is expected to address shipping through the Strait of Hormuz, a vital global energy route, ensuring unrestricted commercial shipping and a scaled-back US Navy blockade.

This development coincided with Goldman Sachs raising its year-end S&P 500 target for 2026 to USD 8,000, up from 7,600. This forecast, aligning with similar projections from Morgan Stanley and Deutsche Bank, suggests further upside potential. Goldman's revised outlook is predicated on stronger earnings projections, with estimated S&P 500 earnings per share (EPS) reaching approximately USD 340 in 2026 and USD 385 in 2027.

Why it matters for Australian investors

While the S&P 500's performance is a US-centric metric, its movements frequently ripple through global markets, including Australia. Australian investors often hold exposure to international equities, either directly, through exchange-traded funds (ETFs), or via managed funds with global allocations. Therefore, a robust US market can positively influence the value of these investments.

The prevailing risk-on sentiment generated by the ceasefire news and S&P 500 rally can encourage broader investor confidence. This might lead to increased appetite for risk assets generally, potentially benefiting the Australian equities market and, by extension, the local cryptocurrency market. Australian investors often view crypto as a higher-risk, higher-reward asset class, and a buoyant global market can make such investments more appealing.

Furthermore, the focus on the Strait of Hormuz is particularly relevant for Australia. As a significant exporter of natural resources, Australia's economy, and by extension the Australian dollar (AUD), can be sensitive to disruptions in global energy supply chains. An agreement that stabilises shipping in this critical waterway reduces geopolitical risk, which can be seen as a positive for global trade and commodity prices – factors that directly impact Australia.

Goldman Sachs' emphasis on artificial intelligence (AI) as a primary driver of future S&P 500 earnings growth is also pertinent. Australian investors, through local exchanges like CoinSpot, Independent Reserve, Swyftx, and BTC Markets, may increasingly consider cryptocurrencies linked to AI narratives or infrastructure as they look for growth opportunities influenced by global tech trends.

Impact on the AUD market

Increased stability in global markets, heralded by the S&P 500's new highs and reduced geopolitical tensions, can generally be supportive of the Australian dollar. The AUD is often considered a 'risk-on' currency, tending to perform better when global economic sentiment is positive and investors are more willing to take on risk. A calmer international environment can lead to capital inflows into Australia, strengthening the local currency.

For Australian crypto investors, movements in the AUD are critical when pricing digital assets. Cryptocurrencies on Australian exchanges are typically quoted in AUD. A stronger AUD means that the purchasing power of Australian investors for globally priced assets, like Bitcoin or Ethereum, increases. Conversely, a weaker AUD could make these assets more expensive in local terms.

The removal of uncertainty surrounding key shipping lanes, such as the Strait of Hormuz, can also bolster commodity prices, particularly energy. As Australia is a major commodity exporter, buoyant commodity markets often correlate with a stronger AUD. This creates a potentially favourable environment for Australian crypto holders, effectively increasing the 'value' of their AUD holdings when converting to or from crypto.

However, it's essential for investors to monitor the broader economic landscape. While immediate sentiment is positive, factors such as the Reserve Bank of Australia's (RBA) monetary policy, local inflation figures, and employment data will continue to be significant drivers for the AUD. Australian regulators like AUSTRAC and ASIC also play a crucial role in maintaining market integrity, and their frameworks contribute to the overall confidence in the Australian financial system, which can indirectly support the AUD's stability.

What to watch next

Australian investors should closely monitor the formal approval of the US-Iran ceasefire agreement. While initial reports are positive, any delays or changes to the proposed terms could reintroduce market uncertainty. The reaction of global oil prices and shipping indices, particularly those related to the Strait of Hormuz, will provide a clear indication of market sentiment regarding geopolitical risks.

The broader trajectory of the S&P 500 remains a key indicator. Attention should be paid to whether the index maintains its upward momentum, especially considering Goldman Sachs' ambitious 2026 target of USD 8,000. Investors should scrutinise the underlying drivers of this growth, particularly the performance of AI-linked companies, as their continued profitability is central to the S&P 500's projected earnings.

Beyond equity markets, the performance of the 10-year US Treasury yield will be crucial. Should yields significantly increase, particularly towards or above 4.75%, it could signal potential constraints on further equity gains, as higher yields can make bonds more attractive relative to stocks. This dynamic often affects risk appetite, impacting how investors allocate capital between traditional assets and cryptocurrencies.

Finally, Australian investors should also keep an eye on domestic economic indicators and regulatory developments. Changes in the ATO's guidance on crypto tax treatment, or any new pronouncements from AUSTRAC or ASIC, could influence investment strategies and the operational landscape for local crypto exchanges. Maintaining a diversified portfolio and staying informed on both global and local factors will be paramount in navigating the evolving market.