The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Precarious ceasefire.
Early morning headlines suggested that the ceasefire was falling apart. Overseas markets traded down modestly and our futures suggested the same. The S&P opened down about 10 points and spent the morning slightly negative. The tape picked up as rumors of a true halt in the attacks spread and with the announcement that Israel would negotiate directly with Lebanon with respect to some kind of agreement concerning Hezbollah. Despite lots of accusations and drama, as the day progressed, it appeared that the ceasefire would hold and that it would continue without exception for a while. Risk assets rallied accordingly. Crude remained higher however too.
All eyes are on two things, reports of attacks and traffic in the Strait of Hormuz. The lack of recent attacks has encouraged risk-taking in markets. The lack of traffic in the Strait, keeps the market nervous… and reluctant to push prices higher. If ships start sailing through the Strait, we should see another leg higher in risk assets and a retreat in crude prices.
We’re just waiting for those ships.
In addition to waiting for the ships, we’re waiting for the start of earnings season. The season has snuck up on us for geopolitical reasons but it’s almost here. Goldman Sachs and Fastenal announce Monday. BlackRock, JP Morgan, Johnson & Johnson, Wells Fargo, and Citigroup announce Tuesday. Releases will pick up thereafter.
Expect companies to address how the spike in input prices not only affected their quarter but on their outlook. The better management explains how they’ll mitigate ongoing price-pressures, the better the stock will perform. I think the Street will be pretty forgiving for misses and guidance trimming, if it plausibly results from the Iran situation.
Until then, it’s back to watching the ships and the ceasefire.
See you tomorrow.
-Mike
Visdom Market Commentary
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