The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
New progress?
The failure of talks over the weekend sent markets into a modest risk-off mode. The hope of a normalization of trade through the Strait of Hormuz was dashed and oil futures climbed, stock futures fell, and yields climbed. As the premarket traded, risk-on moves began and prices began to shift slowly. The announced blockade of the Strait worried markets less and less as the 10 AM ET deadline approached. Perhaps markets assumed an Iranian military response. As time progressed and attacks didn’t come, investors played the risk-on momentum The S&P had opened down about 20 points and rallied to flat by 10 AM. After lunch, the index climbed to +30, encouraged by comments by President Trump that 30+ ships had transited the Strait thanks to the US Navy and that Iranian officials had reached back out to the US in hopes of restarting negotiations. In the final hours of trading, the S&P extended its intraday rally.
Markets are almost entirely reacting to the US/Iran situation. This is not new. However, the feared outcome of Iranian drones attacking any and all ships in the Strait is waning. Whether this is a function of Iran’s inability, or unwillingness, to harass the Strait, is unknown. Markets probably don’t care though. Markets are focused on what appears to be happening in the Strait. Without Iranian attacks, and with the beginning of shipping traffic, markets are projecting that the *global economic consequences* of the US/Iran conflict are normalizing.
The markets don’t seem too concerned with whether political outcomes are good or bad or satisfactory to the White House or not. They are fully concerned with the commercial outcomes of this conflict. And markets are seeing commerce picking up.
Perhaps investors are being too optimistic. Perhaps not. Only time will allow that evaluation. However for right now, markets are seeing, and reacting to, positive *commercial* changes.
A missile/drone strike, or a mine detonation, or a suicide boat attack will change everything of course. Those risks are omnipresent. But until they happen, investors are leaning towards positivity.
See you tomorrow.
-Mike
Visdom Market Commentary
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