The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Sausage making
US/Iran headlines tell different stories, depending on the hour. Some news says a deal is on the verge. Some says a deal is falling apart. The markets react to each news item, although they don’t swing as much as they did a few weeks ago. S&P futures traded +30 in the premarket, on good US/Iran news. Bad US/Iran news broke during the trading day and the index fell down to 7500 after lunch. In the afternoon, trading stabilized in the vicinity of unch’d. Crude fell materially today. Yields barely changed. The Dollar was flat and precious metals fell. It was a mixed bag of market reactions although crude reacts as if an agreement is en route.
The present situation is limbo. Markets are waiting on certainty with respect to the US/Iran agreement. They are no longer reacting significantly to hints and teases. They tread water and will likely wait for a definitive conclusion. We are left watching the diplomatic sausage get made and we are not entertained.
When will an agreement in principle be reached? When will commerce resume in the Strait of Hormuz?
Those are the major questions in all markets. Interestingly, we almost uniformly expect an agreement that will cease attacks and reopen commerce. Other details are up for grabs and different parties will value those details differently, but the main issues concerning capital markets are non-violence and trade. It is highly unlikely for any agreement not to deliver those two items.
We are waiting on the timeline. There must me *some* appreciable capital that is also waiting for the agreement. When that capital goes to work, the peace-is-coming trade will get another pop.
After that, it’ll be all about the slow and steady fall in oil prices, the commensurate drop in yields, and the probable lift in equity prices.
The scene is set. Markets are waiting.
See you tomorrow.
-Mike
Visdom Market Commentary
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