Crude Awakening, Harsh Realities of Strait of Hormuz, 2 Stocks Lead Charge

Market_Recon_TSP1_KL

Wednesday night. "It" got ugly. Real ugly. It? The "ugly stick." Overnight, Brent Crude peaked with a $101 handle as front month WTI Crude futures apexed at $95 per barrel. As we approach morning, I see these two most prominent varieties of oil trading close to $97 and $92 per barrel, respectively. What happened?

Three commercial tankers were struck by the Iranian military in the Strait of Hormuz. The now beleaguered nation has made an overt attempt to keep that narrow (but vital to global trade) passage closed to maritime traffic. The U.S. Navy has now turned down requests to escort tankers through the passage as the Pentagon infers that this cannot be done until the threat of fire from Iranian forces has been eliminated or at least seriously degraded.

As CENTCOM (Central Command, the Middle East) has maintained that its focus remains the destruction of Iran's missiles and drones as well as its ability to disrupt trade, the IEA announced that its 32 member nations would release 400 million barrels of oil from emergency reserves. This will be the largest coordinated drawdown of those reserves since the creation of this international agency in 1973. Additionally, the U.S. announced that it will release 172 million barrels from the Strategic Petroleum Reserve. Energy Secretary Chris Wright said that shipments could begin as soon as next week.

Problem or Problems?

That's just it. While oil and subsequently gasoline as well as natural gas have not yet hit what we might call "scarce" levels, these precious commodities have stopped moving in that crucial region. Sure, the U.S. can unlock 172 million barrels of crude and those shipments might start next week, but realistically and logistically, it could take months to release that much oil.

Then we get to the "coordinated" release of 400 million barrels of oil by the 32 member nations of the IEA. If it could take months for the U.S. to actually mobilize 172 million barrels, how chaotic and slow will this adjacent release go? My guess is it takes some time for that ball to truly start rolling.

Now, we get to the Strait of Hormuz itself. Conditions in that narrow passage are said to be treacherous, far more so since the war began in earnest. Supposedly. The Iranian military has mined the passage. Clearing those mines will require time and special kinds of U.S. Navy vessels that will have to be protected by other warships. For every day that the strait remains impassable, 20 million barrels of oil does not get where it was going and that has a compounding effect on global markets.

How long does it take to clear an area of mines? How does one know that the passage is clear once it is? That, itself, could take months and you don't know. Every once in a while, throughout my life, a mine from World War II would show up someplace strange and cause havoc. CNN is reporting that the Iranian military may have placed dozens of such mines in the strait. The Wall Street Journal is reporting that it may be less than 10. There are mines that float and mines that anchor to the water's bottom making them close to impossible to spot. Iran's navy was thought to have as many as 6,000 mines available at the start of the war.

Elsewhere...

- The U.S. Embassy in Baghdad, Iraq warned U.S. citizens that they are at risk of significant violence should they remain in that nation.

- The IDF (Israeli Defense Forces) started heavily bombing Hezbollah targets in Lebanon on Wednesday after dozens of rockets launched from that side of the border landed in Israel.

- The U.S. expressed displeasure with Israeli attacks on Iranian energy facilities and informed Israel that any such attacks had to be approved in Washington.

- French Pres. Emmanuel Macron said that the G-7 nations had agreed that the war in Iran was not a sufficient reason to remove sanctions on Russian oil.

- The Trump administration announced new trade investigations into China, Mexico, the European Union and several other economies. The probes will be conducted under Section 301 of the Trade Act of 1974 and are likely the first step toward an end-around meant to return tariff levels to what they were prior to the Supreme Court ruling against the president's "reciprocal" tariffs.

- The FBI, this week, has warned police departments in the state of California that Iran could retaliate against the U.S., specifically in that state, using drones against unspecified targets.

Quote of the Day

"While you are proclaiming peace with your lips, be careful to have it even more fully in your heart."

- Francis of Assisi

Marketplace

Wednesday was a generally negative day across financial markets, but not overtly so. Despite February consumer price index data that was quite benign, but also measured ahead of the outbreak of war, the U.S. Ten Year Note paid as much as 4.22% by day's end, up 6 basis points. I see that yield approaching 4.24% overnight.

For the day, the S&P 500 gave up just 0.08%, while the Nasdaq Composite gained 0.08%. Equity markets were, indeed, rather quiet on Wednesday. Even out on the fringes, markets were almost kind of dull. The Russell 2000 lost just 0.2%. The Dow Transports did give back 0.71% as energy prices soared again. The Philly Semiconductors rallied again, up 0.63% for the day, as SanDisk (SNDK) and Micron (MU) again (seems to be every day) led the charge.

Breadth

Market breadth was really tame on Wednesday even if (ever so slightly) negative. Nine of the 11 S&P sector SPDR exchange-traded funds closed out the day in the red, led lower by the defensives, which is usually a bullish sign. Staples (XLP) and the REITs (XLRE) were hit the hardest followed by utilities (XLU) . Energy (XLE) soared for obvious reasons, as tech (XLK) followed.

Losers did beat winners by a five-to-three margin down at 11 Wall St., but by more like four-to-three up at Times Square. Interestingly, while advancing volume took "just" a 39.4% share of compost NYSE-listed trade, advancing volume took a near commanding 59% of Nasdaq-listed activity.

Aggregate trading volume slowed significantly on a day over day basis for a second consecutive day. I know, equity index futures are trading lower overnight, but this is also a bullish sign as the highest volume day this week was Monday, the lone "up" day. Volume ebbed on Wednesday across NYSE-listings, across Nasdaq-listings and across the membership of the S&P 500.

More Trouble

On Wednesday, we learned that Morgan Stanley (MS) and Cliffwater LLC both capped withdrawals from their respective private credit funds as investors sought to redeem more than these vehicles could allow. Cliffwater's $33 billion flagship private credit vehicle had to limit redemptions to 7% of shares during Q1 2026 as investors tried to redeem a record 14%. Morgan Stanley's $8 billion North Haven Private Income Fund returned roughly $169 million, which was less than half of the redemptions requested.

Readers will recall that BlackRock (BLK) also limited withdrawals last week as investors sought to get out of these types of investments. On Tuesday, we also learned that JP Morgan Chase (JPM) had informed private credit lenders that it had marked down the value of certain loans in their portfolios.

Economics

(All Times Eastern)

08:30 - Initial Jobless Claims (Weekly): Expecting 216K, Last 213K.

08:30 - Continuing Claims (Weekly): Last 1.868M.

08:30 - Housing Starts (Jan): Expecting 1.34M, Last 1.404M SAAR.

08:30 - Building Permits (Jan): Expecting 1.41M, Last 1.455M SAAR.

08:30 - Balance of Trade (Jan): Last $-70.3B.

10:30 - Natural Gas Inventories (Weekly): Last -132B cf.

1:00 p.m. - US Thirty-Year Bond Auction: $22B.

The Fed

(All Times Eastern)

10:00 - Speaker: Reserve Board Gov. Michelle Bowman.

Today's Earnings Highlights

(Consensus EPS Expectations)

Before the Open: (DKS) (2.97), (DG) (1.62)

After the Close: (ADBE) (5.87), (LEN) (.95), (ULTA) (7.98)

At the time of publication, Guilfoyle was long JPM equity.