The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
The party continues
Despite the all-too-familiar problems with the US/Iran negotiations, markets continued their trend. The domestic headlines were pedestrian and investors mostly continued the moves from last week. S&P futures traded slightly lower overnight and in early trading but US investors pushed prices up during regular trading hours. The index opened down about 10 points and quickly lifted to spend the day in the +10 to +30 point range, finishing up small at the close. Crude and Treasuries reacted to the US/Iran difficulties as per usual. Crude climbed across the curve, with the biggest gains in the front. Yields climbed across the curve, flattening slightly from 2 years to 30.
US equities seem to be immune to negative US/Iran headlines now. Crude and bonds still react to each day’s developments and they appear to be fairly sensitive to even minor news. Crude’s sensitivity makes all the sense in the world. Why Treasuries are so sensitive is less clear. Why equities are ignoring US/Iran things is also less clear.
It’s certainly a weird situation. It’s not unusual to see stocks and bonds react differently to situations. Typically, it’s interpretation of Fed communications or macroeconomic data. And over time, the two markets eventually converge somewhere and pretty much return to trading in agreement thereafter.
This circumstance is quite different because we’re dealing with political news and outcomes. It’s also different in that the most influential mechanism upon capital comes from crude prices, which is obvious to all and subject to almost no interpretation. Why are Treasuries trading with crude while stocks trade indifferently to it?
I have no good answer. That said, perhaps having an answer isn’t germane. The reactions are observed and that’s more important than understanding why.
Baring horrific US/Iran headlines, expect stocks to continue to party. They may be overbought but they’re still climbing. When it ends, it probably won’t end ugly. It probably just fizzles out. The dip-buyers almost certainly will catch the tape.
And here’s the kicker. *If* a US/Iran deal gets made, Treasuries are going to jump, crude is going to drop, and yes, stocks are going to extend their rally.
Stocks are considered the risky asset class but lately they’ve been counterintuitively bulletproof.
See you tomorrow.
-Mike
Visdom Market Commentary
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