The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Ceasefire extension?
The US/Iran ceasefire continues and while the Strait of Hormuz lacks shipping traffic, markets are taking comfort in the fact that neither side is attacking the other. The Israel/Hezbollah fighting continues, which complicates the US/Iran negotiations, but markets aren’t concerned with the fighting in Lebanon at the moment. Anyway, a two-week extension of the US/Iran ceasefire is being bounced around and investors are pleased by the idea. The S&P opened about +10 today and rallied further over the course of the day, printing new all-time highs in the afternoon. While equities climbed, bonds fell slightly. Yields climbed 1-3bips across the curve. Crude increased small across its curve as well.
The bull market continues as long as the US/Iran situation proceeds smoothly. The logjam in the Strait remains problematic for global trade and price normalization but markets are not concerned with that yet. Markets are assuming that as the US/Iran negotiations progress *without a resumption of violence,* the shipping will resume soon enough and the resulting economic frictions will ebb.
At some point, the market will need to actually see shipping normalize in the Strait but we’re not at that point yet. Nobody knows when the market’s patience will wear out regarding that either, so there is a ticking clock at play. However the situation is not as tense as the prior weeks, so that is nice. We’re just not out of the woods.
Earnings season began and so far the results are good. Most stocks are beating the Street, which is typical. We’ve only seen a handful of results so extrapolation makes no sense but the *mood* surrounding the season has improved. It doesn’t seem like markets are expecting fireworks and massive rallies due to earnings… but the worry about disappointments seems off the table. There was prior concern about how the Middle East conflict could hurt corporate results. So far, that concern is misplaced and investors are breathing a little easier.
16 S&P 500 constituents report over the remainder of the week and then the floodgates open. We’ll have to analyze that data but the market’s attitude is good.
See you tomorrow.
-Mike
Visdom Market Commentary
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