The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
FYI. I’m out of the office tomorrow. Next Recap will be Monday.
60-day truce
A little after 10 AM, news broke that the US and Iran agreed to a truce. Crude fell, rates fell, the Dollar fell, precious metals jumped, and equities jumped. The moves weren’t huge but they were unambiguous and they all corresponded to the usual war-is-stopping direction. There were no odd-man-out asset behaviors considering this catalyst. President Trump still needs to agree to the terms but markets are assuming this is a done deal. We shall see.
Markets have been waiting for a peace deal for a while. This looks like a likely one, even if it is a truce. Now markets wait for the reopening of the Strait of Hormuz. When will the ships start sailing? We are all watching. It is doubtful that, as the first ships pass, markets will react strongly. It is more likely that markets will go about the usual day-to-day gyrations, with the exception of crude.
The crude market *should* fall steadily as the first tankers sail. Then, it should continue to fall as meaningful supply hits the market. This will be a process. As long as the oil market begins, and continues, its normalization process, oil prices will drift lower and the other markets will incrementally react. Yields should drift lower with crude, not in lockstep, but certainly with notable correlation. That will affect the Dollar, and also, stocks. The influence on precious metals is unclear.
This *should* be the beginning of a significant period, say one to two months, of positive fundamental factors for US equities.
US/Iran headlines will still shake up the tape but it seems as though the situation is behind the market. I hope those aren’t famous last words.
Soon, equities will return primary focus to GDP strength and the path of the Fed. I don’t know when we’ll fully return to business-as-usual, but we’re pretty close.
And while we wait for month-end, and the labor data, and inflation data, and the eventual FOMC decision….crude should be dropping, rates should be dropping, and stocks should be climbing.
It’s not a slam dunk but it isn’t pie in the sky either.
See you Monday, have a great weekend.
-Mike
Visdom Market Commentary
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