The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Brushing Iran off
Overseas markets sold off strongly on the news of the Iranian attacks. Risk-off reactions were widespread. The Asian and European stock markets fell 1-2%. S&P futures were off as much as 119 points around 3 AM ET. The index opened down 70 points and steadily climbed for an hour. It back-and-forthed until getting to flat before noon. It spent the rest of the session about flat. Yields climbed a lot across the curve. The US Dollar strengthened considerably. Gold and oil rallied too. Capital flow was high at 120%, but not indicative of distress.
Considering that the rally in equities was a US phenomenon, we must credit our dip-buying community for keeping the downside limited and then essentially undoing it. It is unclear why US dip-buyers are not concerned about the Iranian situation. Certainly there is a case to be made that the US and Israeli attacks were clean enough and effective enough that Iran will not counter with anything meaningful to global markets. However there is also a credible case that material risks have been increased. The situation is clearly uncertain but our investors are not dissuaded from getting longer. I’m not sure they have any edge with respect to this geopolitical situation.
History is almost certainly a factor for our equity markets. Excepting major and unavoidable economic shocks, every dip has been a lucrative opportunity for the buyers. The Iranian situation does not appear, at the moment, like it will cause a material decline in US or global GDP. It doesn’t look like it will trigger a cascade of fear in any significant market or markets. It doesn’t look like the fears and effects of this situation will last long enough to permeate market sentiment and potentially change foundational attitudes.
The US dip-buyer has become a robotic bulwark against downside. If the news isn’t catastrophic, with a near-certain likelihood of recessionary consequences, they go to work.
I don’t know whether that attitude is foolish or admirable. Judging its value is better for dinner conversation. What’s relevant to us is that it exists. The dip-buyers are going to send us higher. It might be a little bumpy but it seems like a foregone conclusion. Only a horrific event will alter their behavior.
See you tomorrow.
-Mike
Visdom Market Commentary
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