Trump says Iran war "close to over" amid hopes for more negotiations
We seem to be near a market level where people are comfortable to wait out the next move in Iran.
The Dow was in the green this morning. As was the even-weighted S&P. The other major indexes are only modestly in the red. This is despite higher oil and higher interest rates, and a higher VIX. The only sectors in the red are tech, communication services, industrials, and consumer discretionary. The dip buyers are stepping in and buying value and low volatility stocks. Growth and momentum stocks remain weak.
Time is of the essence when it comes to the energy markets. It takes about a month for long haul ship borne deliveries to make it to refineries. The real energy shortage of the closing of the Strait of Hormuz a month ago is about to be fully felt. We should expect to hear stories soon of problems in places like the Philippines and Vietnam, which get 80% of their oil via Hormuz. South Korea imports 2/3 of their oil via Hormuz. Island nations like Australia and New Zealand, without pipelines to oil fields, are also vulnerable. All have reserves to tap, but those will likely be held for essential services and will also create excess demand to refill when oil flows again.
The US market is leading globally today, with emerging markets particularly weak. For the trailing month, it’s the same trend, most likely due to the US overall strength, but importantly, the US is energy independent. Global interest rates have risen more in the last month than they have in the US as well.
Trump had a press conference at 11:00 am ET in which he said that he still hopes the war in Iran will be short, 4-6 weeks, and that he thought that oil prices would have gone higher, and the stock market lower, when he decided to attack Iran. And that they still might before it’s over. The market drifted lower on this acknowledgment. But at the same time, Trump said he expected things to be even in a better position once things in Iran are concluded, with lower oil prices and higher stocks than before things started. There is some comfort that the damage we’re seeing is not a surprise to him, more an unavoidable price to pay in the short term to eliminate a serious threat in the long term. Of note is that crude contracts for later in the year are currently at prices much lower than spot prices.
It appears the dip buyers might have been spooked by Trump saying things may get worse before the Iran situation is resolved. At the same time, a recession is not part of the plan, and perhaps the 5% correction we’ve seen so far is close to the correction we can expect. Investors are hesitant to underweight for the big rebound likely to come when Iran is deemed resolved. For now, the trend remains volatile.