On Tuesday, the TSX composite rose 1.25% and WTI crude retreated from its highs toward the $99 range. The proximate cause was a single statement: President Trump told reporters that the Iran conflict could end "very quickly." Within hours, equity markets in Toronto and New York moved as though the Strait of Hormuz had already reopened. It has not.
This is a textbook availability heuristic event. The cognitive bias, first identified by Amos Tversky and Daniel Kahneman in their 1973 paper in Cognitive Psychology, describes the tendency to judge the probability of an outcome by how easily a vivid example of it comes to mind. A Trump statement about peace is vivid. The seven prior deadlines he set and extended are less vivid, because they produced no resolution and therefore no emotional imprint worth retrieving.
Why the Relief Rally Feels Like a Signal
The challenge for investors in the current environment is that market prices themselves have become the most available cue. When the TSX rises 420 points in a session, that number is concrete and felt immediately. The eighteen merchant ships damaged since the Strait closure began, the dual blockade still in place as of this morning, the Pakistan-mediated talks that have not produced a framework agreement: these are abstract. The TSX print is not.
Hersh Shefrin, in his 2002 work Beyond Greed and Fear, described this as "sentiment-driven repricing," where investors attribute a price move to a cause that feels satisfying rather than the cause that actually drove the move. Tuesday's TSX rally was partly driven by short covering and algorithmic momentum strategies responding to WTI's dip below $100. The retail investor reading the headline sees "TSX up 1.25%, peace talks advancing" and constructs a narrative of resolution.
The available heuristic is doing exactly what it always does: substituting a vivid, emotionally resonant question, "Is the war ending?" for the more analytically correct but harder question, "What is the realistic probability distribution of outcomes over the next sixty days?"
What the Research Shows About Relief Rallies
The chart above shows the TSX composite's pattern across prior geopolitical shock-and-recovery cycles, alongside the number of days elapsed before a genuine resolution allowed the index to hold its gains without reversion. The pattern is consistent: early relief rallies during active conflicts are statistically more likely to reverse than to mark durable bottoms.
The bar height represents the magnitude of the initial relief rally; colour indicates whether the rally was subsequently reversed before the geopolitical event reached formal resolution. Four of five prior cycles saw the initial relief move surrender gains within a median of eleven trading days.
Richard Thaler and Shlomo Benartzi documented in their 1995 paper "Myopic Loss Aversion and the Equity Premium Puzzle" that investors evaluate portfolios far more frequently than is rational and react with disproportionate sensitivity to short-term losses. The inverse of this finding is equally important: investors react with disproportionate comfort to short-term gains, temporarily overriding the risk assessment they held the day before the relief arrived.
The Specific Mistake to Watch For Now
The behavioural mistake that unfolds from here is not panic selling. It is the opposite: premature comfort. The client who called in late April about their energy overweight, or their rate-sensitive exposure, or their gold allocation, is now less likely to call. The TSX is up. WTI is off its highs. Trump said peace might come quickly. The availability of negative cues has dropped and the availability of positive ones has risen, not because the underlying risk has changed materially, but because this week's price action has refreshed the emotional reference point.
The dual blockade of the Strait of Hormuz remains in place as of May 21. Pakistan-mediated talks are ongoing but no framework agreement has been reached. The Bank of Canada held at 2.25% on April 29 with an explicit warning that a rate hike remains on the table if energy-driven inflation becomes persistent. Canada's April CPI printed at 2.8%, the highest in two years, with gasoline up 28.6% year over year. None of these facts have changed in the past 48 hours. The availability of these facts in investors' working memory has changed.
That is the distinction worth surfacing in client conversations this week.