The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Many steps backward
The US/Iran setback from yesterday turned into a major reversal overnight and today. The US attacked Iran and future attacks seem assured. Markets reacted accordingly. Crude climbed. Yields climbed. Stocks fell. Precious metals fell. It is notable that stocks did not drop very much considering the u-turn in the US/Iran situation. The S&P opened down about 40 points, fell further through the morning and bottomed down 80. The index recovered through lunch and spent the afternoon around down 25 points. Capital flow was actually light today, 88%.
The seemingly endless cycle of positive and negative news produced from the US/Iran situation is wild. It is clear that a neat conclusion to the conflict is unlikely. That said, markets aren’t as concerned as they were a few months ago. Why that is, is up for debate. The investing reality is that markets, and commerce, are becoming progressively less affected by the US/Iran fighting. This is a tremendous victory for the bulls, even though today was a bit painful.
It seems that markets are nearing the point where they are moving on, without the politicians. A few months ago, the thinking was that political resolution would lead and market resolution would follow. After umpteen false deals, markets are done waiting. It looks like markets are pricing in *some* kind of perpetual drama over there and they are returning their attention to the usual factors. Maybe beautiful peace surprises the markets, maybe not. Maybe high traffic returns to the Strait of Hormuz, but most entities that have been forced to deal with the problems of the Strait, have been scrambling for alternatives…and those alternatives, while not perfect, are working. It is unlikely that things will go back to the way they were because the risk of a bolt-from-the-blue Iranian policy change in the Strait is too risky to tolerate.
So my point is that businesses and markets have permanently changed behaviors as a result of this war. Markets are comfortable with that adjustment. They no longer require a return to the old state of things to go forward.
Barring a huge military escalation, I think markets just showed us that US/Iran developments are of minor importance.
So whether the powers that be can negotiate something productive or not, markets are no longer held hostage to the process. They are on to the next thing.
Speaking of, that next thing will be earnings season. It has snuck up on us. Pepsi announces tomorrow. Delta Airlines announces on Friday. The first batch of large financials announce Tuesday next week.
There’s been no hype. Consensus thinking is that results will be strong. Estimates have been climbing steadily since last season.
It sure looks like a favorable environment for the bulls. We shall find out shortly.
See you tomorrow.
-Mike
Visdom Market Commentary
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