The second quarter of 2026 kicked off on a shaky note, with the Iran war grabbing major headlines. The activity in the Strait of Hormuz – a vital route connecting the Persian Gulf to global markets – remains largely stalled as the conflict enters its seventh week. The United States has imposed a blockade on Iranian traffic, while Tehran has restricted access for most other vessels.

The U.S. blockade of the Strait of Hormuz triggered a familiar market response initially — higher crude prices and a rise in bond yields. However, this time, the reaction has been relatively muted outside of oil, as quoted on CNBC. Benchmark U.S. treasury bond yields rose from 4.29% on April 9 to 4.31% on April 10, while the same fell to 4.26% on April 14 and recorded 4.29% at the close of April 15.

The equities ETF State Street SPDR S&P 500 ETF Trust (SPY Quick QuoteSPY - Free Report) added about 4% over the past week. Volatility-based exchange-traded product Barclays iPath Series B S P 500 VIX Short Term Futures ETN Series B (VXX Quick QuoteVXX - Free Report) lost about 8% over the past week. This suggests that equity investors have largely priced in geopolitical risks and are becoming less sensitive to such developments.

Investor Sentiment: Peak Uncertainty?

Market participants appear to view recent developments as part of broader negotiation tactics rather than a lasting escalation, as mentioned in the same CNBC article. This shift in perception has reduced the intensity of market reactions compared to the earlier phases of the conflict.

Despite near-term volatility, many analysts expect oil prices to eventually decline as geopolitical tensions ease. A possible resolution between the United States and Iran could quickly relax the current risk premium in energy markets, as quoted in the same CNBC article.

As per the latest update, Washington and Tehran are considering an extension of the existing two-week truce to allow more time to negotiate a peace deal, per Bloomberg, as quoted on Yahoo Finance. As a result, oil prices held steady on Wednesday. 

Equities Poised for Recovery

U.S. stocks saw strong trading on Wednesday while E-Mini S&P 500 Jun 26 futures topped the 7000-mark for the first time, at the time of writing.

The current scenario indicates that equities are likely to rebound if the situation does not worsen materially. Overall, markets are entering a mixed phase – where geopolitical concerns linger but no longer trigger extreme reactions, as mentioned in the above-mentioned CNBC article.

Upbeat Earnings Season in Focus

Meanwhile, we are off to a strong start to the Q1 earnings season, with companies not only comfortably surpassing consensus estimates but also offering a reassuring outlook on the economy despite elevated energy costs and other risks. Early in the reporting cycle, the momentum is especially evident on the revenue front, both in terms of growth rates and the magnitude of positive surprises.

ETFs to Play

Against this backdrop, we highlight select exchange-traded funds (ETFs) that have seen short-term gains over the past week and month, but remain in the red on a year-to-date (YTD) basis.

Vanguard Mega Cap Growth Index Fund ETF Shares (MGK Quick QuoteMGK - Free Report) – Zacks Rank #2 (Buy)

YTD Return: Down 0.5%

One-Month Return: Up 6.6%

One-Week Return: Up 6.5%

First Trust Dow Jones Internet Index Fund (FDN Quick QuoteFDN - Free Report) – Zacks Rank #2

YTD Return: Down 2.6%

One-Month Return: Up 6.4%

One-Week Return: Up 4.5%

iShares U.S. Financials ETF (IYF Quick QuoteIYF - Free Report) – Zacks Rank #2

YTD Return: Down 3.9%

One-Month Return: Up 6.5%

One-Week Return: Up 2.3%

Vanguard Mid-Cap Growth Index Fund ETF (VOT Quick QuoteVOT - Free Report) – Zacks Rank #2

YTD Return: Down 1.2%

One-Month Return: Up 4.2%

One-Week Return: Up 2.9%