US stock markets are up big today.
I laid out the signs of the emerging US strategy lately and it’s something they’ve been tip-toeing towards since the war started. It’s basically a cut-and-run strategy where they blow everything up in Iran and then leave the rest of the world with the job of the hard part: Making peace and getting Hormuz open.
“Go get your own oil,” Trump wrote in a message to the world.
I don’t exactly take that as good news as it will leave Iran with the leverage to keep the Strait closed or run a tolling system.
But the market is optimistic, so what gives?
There was a report yesterday that said officials from some neighbouring countries were looking towards China to act as a security guarantor of Iran. That may be a path to an actual deal that leaves its energy intact and would allow it to accept a deal, which would obviously need to include sanctions relief as well.
Something like that seems to be what the market is pricing in now and only time will tell whether that’s misguided. Note that the oil market isn’t exactly waving the ‘all clear’ signal with WTI down 70-cents to $102.20 today.
The bounce in stocks could also reflect washed out sentiment. The Fear & Greed Index is in ‘extreme fear’.
Goldman Sachs also writes:
Systematic positioning is now approaching washed-out levels.
Our CTA estimates show positioning has flipped to outright short in US equities, which has historically been associated with more supportive near-term price action.
We are certainly getting that near-term lift today with the S&P 500 up 1.6% and the Nasdaq up 2.1%.
Finally, it’s worth a look at the VIX as it’s quickly retreated from 30 to 27 but remains elevated. Note though that the shock is nothing compared to Liberation Day.
This article was written by Adam Button at investinglive.com.
