The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Indefatigable
Overseas markets took no solace from our markets’ robustness yesterday. Asia fell 1% to 3% and Europe fell more than 3%. Our futures fell in sympathy, they implied a 120 point decline around 6 AM, a very similar situation to yesterday’s premarket. The S&P opened down about 110 points and fell further during the initial hour, bottoming when down 170 points. US bulls took over from there and pushed the tape higher through lunch. The bulls repaired about half the damage from the open. Yields climbed across the curve again, but this time just a bip or two. The Dollar climbed about half as much as yesterday. Gold was sold and crude climbed a couple of bucks. Capital flow was heavier today, 135%.
While attacks continue and headlines fly, the news isn’t changing the general opinion on the situation. The conflict continues. It was not a one-day event. President Trump stated that it would take weeks. Investors surely didn’t like hearing that violence would continue for so long but they aren’t panicking either. Iran claimed that the Straits of Hormuz were closed, which really spooked markets, but President Trump countered by saying that the US navy will escort tanker if necessary. The epicenter of the conflict is the Straits of Hormuz currently. Markets wait to see what happens there. The speculation is that the US will keep the tankers protected and sailing. The risk is that Iran has effective countermeasures to the US.
US dip-buyers are being tested for sure. The headlines deliver a steady flow of negative news but no game-changing shocks. Anything that plausibly introduces recession as an outcome will drastically shift the investing landscape against the dip-buyers, and they will not be able to fight the tape. This should be obvious.
The real question is whether the dip-buyers will hang in there while the drip drip drip of conflict pressures their positions. I think they can handle a week or two of falling prices, perhaps as much as 5%. After that, I’m not so sure.
As self-assured and supported by history as they are, even the dip-buyers are at risk of throwing in the towel if they don’t get help from the headlines or relief from the bears.
See you tomorrow.
-Mike
Visdom Market Commentary
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