Stocks like peace.

For much of this year, the war in the Middle East has been a major source of uncertainty. Every escalation raised fears of higher energy prices and another inflation scare.

But over the weekend, the US and Iran reached a ceasefire agreement that appears to have significantly reduced the odds of a broader regional conflict. 

Markets wasted no time responding.

Stocks gapped higher Monday morning. The S&P 500 (SPY) finished the day up 1.8%, while the Invesco QQQ Trust (QQQ) gained 3.1%.

But that's not even the biggest story.

Oil got absolutely smoked on the news.

The United States Oil Fund (USO) has plunged 8% since Friday's close. It's now trading 26% below its recent highs.

This is a huge deal, even if you don't own a single energy stock.

Energy prices have been one of the biggest drivers of inflation over the past several years. When oil spikes, consumers feel the squeeze at the gas pump. Transportation costs also rise, making life more expensive for everyday folks and business alike. 

In fact, elevated energy costs were a major reason recent Consumer Price Index (CPI) and Producer Price Index (PPI) reports came in hotter than expected.

Now that oil is moving sharply lower, investors are beginning to price in a friendlier inflation backdrop heading into the second half of the year.

And that has major implications for interest rates.

Lower energy prices can help cool inflation expectations. Lower inflation expectations give the Federal Reserve more room to cut rates. And lower rates tend to be bullish for risk assets, especially growth stocks.

The timing couldn't be better. 

Today, Kevin Warsh will deliver his first FOMC press conference as the new Fed Chair.

Traders will be listening closely for any clues about how aggressively the Fed plans to respond to a rapidly changing inflation picture.

If falling oil prices continue to ease inflation pressures, the market may be on the verge of getting exactly what it wants: lower rates, stronger growth, and a fresh catalyst for stocks.

If that happens, we could see more market rotation out of “safe” sectors and into “risk on” sectors, opening up new opportunities for growth and small-cap stocks.

Tracking that kind of rotation as it happens is basically a full-time job. But it’s what I do for members of my Express Trader advisory every week.

On Tuesdays, I send members my top three trades for the week, plus a snapshot of my PRO Meter—the gauge that tells me what kind of trading environment we’re in.

To keep up with the market’s moves without doing all the legwork yourself, upgrade to Express Trader here.

Justin Spittler Director of Trading, RiskHedge