The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
It’s a dip-buyer’s world.
And we all just live in it. The surprise bombing of three Iranian nuclear sites by the United States woulda coulda shoulda sent investors into a risk-off frenzy and shocked capital markets when they opened today. This didn’t happen. There was *some* selling in overnight S&P 500 futures and oil jumped higher and gold climbed and Treasury yields dropped, but all the moves were small. As the day began and proceeded, most of the initial reactions unwound completely. A midday report that Iran launched missiles at a US base in Qatar send the S&P down quickly but the dip lasted maybe 15 minutes before the bounce repaired all the damage and then some. The S&P printed intraday highs a couple of hours later and crude oil ended up finishing *down* on the session, dropping more than 6%! Capital flow was somewhat elevated at 112% today so plenty of capital was in motion, adjusting to all these developments.
The market interprets Iran’s retaliation as a de-escalation move. Until something radically changes that interpretation, the bulls are going to be back in charge of the tape. Markets will watch all the headlines of course and the financial press will have many stories to report over the coming weeks but they will not affect markets much *unless* they destroy the current narrative. Investors are back into the business-as-usual mindset and they aren’t going to sell as Mid-East headlines zoom around. The geopolitical significance of what’s happening is great but the market effects are negligible.
We can debate the wisdom of this interpretation but it’s not going to be productive. The market has already decided that Iran has lost, Israel and the US have won, and that whatever Iran says will be smoke and mirrors. What it does will matter and it is currently incapable or unwilling to do anything that will disturb the markets.
Given that this is the confident decision of the markets, it will only be noteworthy if it ends up being wrong. And to be wrong, some horrible event will need to occur. It’s an unpleasant hypothetical but it is the lay of the investing land.
Current attitudes suggest new highs are on the horizon.
See you tomorrow.
-Mike
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