The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Cracks forming
As the Iran situation simmers, inflation worries permeate markets, and risk-off price action continues. The S&P opened down about 15 points and lost value in the first hour, holding in the down 50 point neighborhood until about 1:30 PM, and then dropping further over the end of the day. Yields across the Treasury curve climbed a huge amount today, 9-15 bips. Fed Funds futures completely flattened for the year. No rate cuts are priced until ’27. 5 bips of rate *hiking* is priced through the end of this year. The first 25 bip cut is projected for December of 2027.
The patience of markets is wearing thin. Maybe one could argue that the patience just went. Markets are not panicking but they appear to be throwing in the towel on preserving yesterday’s levels on the expectation for a quick resumption of commerce in the Strait of Hormuz.
Until a positive headline breaks, I think markets will price in the negative consequences each day. The return-to-normal scenario will have to be observed. It is no longer embedded in price. Of course, markets still *expect* the Strait to open and oil prices to drop and inflation pressures to fall etc. But they are no longer ignoring the cost of the wait. And they no longer assume that a quick-fix will undo whatever damage we’ve experienced.
Risk-off is the new trend. That trend won’t reverse until a major positive breakthrough happens. I also suspect that even brief rallies will need an assist from small positive breakthroughs. For as long as the news reflects non-progress, the risk-off drift will continue.
See you Monday, have a great weekend.
-Mike
Visdom Market Commentary
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