The two-week ceasefire between the US and Iran has ignited a powerful relief rally, offering investors immediate opportunities to capitalize on receding tail risks, even as structural vulnerabilities in the energy market persist.

Markets do not require full certainty to rebound, says Ray Sharma-Ong, Aberdeen Investments’ deputy global head of multi-asset bespoke solutions, but the mere “removal of extreme downside risk” is often sufficient to trigger a sharp recovery.

For investors, the following opportunities and risks define the current short- to medium-term outlook.

In terms of opportunities, growth and technology stocks are expected to rebound with mega-cap tech and AI-driven names leading the recovery, as they were hit hardest by previous risk aversion.

“Lower energy prices,” notes Nigel Green, deVere Group’s chief executive, “reduce inflation expectations at the margin, which supports valuations.”

North Asian equities are also expected to recover with markets in Korea, Taiwan and Japan – all major oil importers – being positioned to rebound the fastest as the geopolitical risk premium fades.

Consumer and cyclical stocks are also expected to gain as declines in oil prices and fuel costs are an immediate win for airlines, travel and retail.

Also, if the ceasefire holds, industrial stocks, emerging markets and cyclical stocks will have room to recover.

In the wider capital markets, relative financial stability brought on by a reduction in uncertainty supports credit and capital markets activity, which is constructive for bank earnings.

In terms of risks, “while the rally is powerful, it is driven,” Green points out, “by the removal of immediate fear rather than a resolution of underlying issues.”

This view is seconded by Michael Langham, Aberdeen Investments’ emerging markets economist, who warns that “tail risks will remain large over the next two weeks” as experts are sceptical that a long-term agreement will be reached, citing Iran’s 10-point conditions and the unlikely termination of the US military presence in the Gulf.

Investors should not expect crude oil to return to previous lows quickly, Sharma-Ong adds, as factors like “war risk insurance, delays, congestion, rerouting inefficiencies and precautionary stockpiling” have created a structural premium that is now embedded in the price.

The two-week window in the wake of the ceasefire creates a “countdown” period where, if diplomacy fails to deliver substance, Green says, “volatility would return, oil would spike again and equities would give back gains.”

For investors, the recommended strategy would be “managing manageable shocks”, according to Langham, who states: “While a successful ceasefire makes the global economic shock manageable, a failure would force central banks to pivot away from their pre-conflict paths.”

Ultimately, while the current environment favours participating in the upside, the next phase of the market depends entirely on whether, he adds, “diplomacy can deliver substance beyond a temporary halt”.

“Investors should participate in the upside,” Green adds, “while recognizing that the next phase depends entirely on whether diplomacy can deliver substance beyond a temporary halt.”