The stock market has become a front in the Iran war. Here's what it means for investors

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 surged almost 40% to over $4 a gallon. Dated Brent crude — the physical oil that refineries actually buy — spiked this week to $141 per barrel, the highest level since the 2008 financial crisis. Meanwhile, institutions from Vanguard to the Federal Reserve Bank of Atlanta have raised inflation expectations and revised growth estimates downward, with the Fed’s GDP tracker falling from 3% in early March to just 1.6% as of Thursday.

If the economic effects have already been profound, they have failed to grab headlines in the way that the stock market has. Increased volatility, with presidential statements functioning to move trillions in value, may represent something genuinely new: the market itself treated as a quasi-front in the war.

Take the events of Monday, March 23rd.

Around 7 a.m., Trump posted on Truth Social claiming “very good and productive conversations” between the U.S. and Iran that were leading toward a “complete and total resolution of our hostilities.” Within minutes, the S&P 500 surged 2.6%, adding roughly $2 trillion in market capitalization. Oil plunged. The Dow appeared set to open 900 points higher.

By 8 a.m., Iran's foreign ministry had issued a flat denial, calling Trump's claims “psychological warfare” and stating there had been no direct or indirect contact with the president. About $1 trillion of the morning’s gains evaporated. Total market swing: $3 trillion in a few hours, triggered by a social media post that Iran quickly contradicted. The sheer volume of algorithmic trades in the U.S. market likely amplified the dynamics, with programs that execute based on sentiment analysis likely accounting for a significant chunk of overall volume.

This week, officials in Iran upped the ante by trolling Trump on social media, with parliamentary speaker Mohammad-Bagher Ghalibaf posting this trading advice to American investors on X $TWTR: “Pre-market so-called ‘news’ or ‘Truth’ is often just a setup for profit-taking,” he wrote. “Basically, it’s a reverse indicator. Do the opposite: If they pump it, short it. If they dump it, go long.”

The information warfare has only escalated from there. On Thursday, Ghalibaf posted a poll asking whether he should “name names on a handful of bankers and hedge funds” that he claims are profiteering from war policy, complete with apparent taunts directed at hedge fund manager Bill Ackman, who’s often treated as a pretender to the throne in finance circles: “Ackman here: Invite lost?”

It's absurd, and it’s also a signal. The Iranian speaker’s posts have garnered millions of views, and at least in the very short term, his investment advice could well have proven profitable, because betting against Trump’s Iran claims this past week — say, by betting on rising on oil prices or broadly shorting the U.S. market — would have made money.

In any case, the spectacle of an enemy official successfully coaching American investors against their own government’s statements represents something unprecedented in the annals of warfare.

The vulnerability that Ghalibaf is simultaneously mocking and exploiting is Trump’s own credibility. Major news organizations very quickly published stories suggesting Trump’s claims of negotiations with Iran are 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 passed through Middle East intermediaries, with no direct U.S.-Iran contact and Arab mediators privately expressing skepticism that any deal was close. The New York Times then delivered the knockout blow, revealing that multiple U.S. intelligence agencies assess Iran “is not currently willing to engage in substantial negotiations” and that the two countries “are not in negotiations over terms of a cease-fire or ending the war.”

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

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

What we’re now seeing is “classic wartime volatility cycle amplified by real-time presidential signaling,” Pejic said. “Yet while not entirely new, this time we are seeing it play out in a much more extreme and faster fashion than in past conflicts” — driven by “today's information environment” where “extraordinary weight is put on the words of the president.”

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

The other danger is “repeated premature optimism (e.g., earlier 'very complete' or 'two-to-three weeks' comments that didn’t materialize and were not clearly substantiated)” breeding cynicism and sowing distrust so that “investors start discounting official statements, which can delay genuine price discovery when real news arrives.”

There’s also the chance that one’s adversary – Iran, in this case – tries to exploit that distrust.

“Overall market integrity isn’t broken but the signal-to-noise ratio is deteriorating,” Pejic said.