Intraday Recovery Is Encouraging, But the Fog Has Not Lifted

The market's reactions to dramatic events like the bombing of Iran and a widening war in the Middle East is extremely difficult to predict. On one hand, the drama creates genuine uncertainty and drives many market participants to the sidelines. On the other hand, sharp moves attract opportunistic traders and investors eager to take advantage of mis-pricing and unusual volatility. Both forces were at work on Monday, and the result was a market that ultimately went almost nowhere.

All the major indices ended close to flat after negative opens. The Russell 2000 (IWM)  was the standout, gaining 0.9%. Small caps tend to lead when a news event is primarily international in nature because smaller domestic companies are largely sheltered from the direct ramifications of the Middle East conflict. When small caps lead, they also tend to produce positive breadth simply because there are far more small stocks than large ones. At the close, around 53% of stocks finished in positive territory, and there were approximately 287 new highs versus 244 new lows. That is not only benign, but it is also mildly constructive.

The big indices got some help from oil and defense stocks, which rallied sharply on the geopolitical news. There continues to be significant turmoil in the AI sector, but a bounce in Nvidia (NVDA)  helped offset some of that pressure and kept the Nasdaq from falling further.

Action Looked Routine If You Didn't Know the News

If you simply looked at the price action without knowing what was happening in the world, it looked like a fairly ordinary Monday. A weak open followed by steady improvement throughout the day. Nothing dramatic in either direction. That kind of resilience in the face of serious geopolitical news is worth noting, but it is also worth keeping in perspective. An intraday recovery is an encouraging sign. It is not a green light.

The big question is what comes next. We still have an enormous amount of international and macroeconomic uncertainty to navigate. The Iran situation is unlikely to be resolved quickly or cleanly. Military conflicts rarely follow a straight line, and investors should expect setbacks, escalations, and periods of false calm along the way. Each new development will require the market to reassess. That kind of ongoing uncertainty is exactly what wears investors down over time, which is the dynamic I wrote about on Monday morning.

Moving Slowly Until Picture Clears

I see little choice but to continue moving slowly and waiting for better price action and technical conditions to develop. The stocks with strong fundamentals and compelling valuations will ultimately be recognized, but the path there is unlikely to be smooth or quick. The longer this uncertainty persists, the greater the risk that investors grow fatigued with the drama and move to the sidelines, creating additional selling pressure even without any new negative news.

There are good opportunities developing in this market for patient investors. But patience is the operative word. As I have often said about the stock market, if it were easy, then you couldn't grow wealthy by trading and investing. The difficulty is the point. It is what creates the opportunity for those willing to do the work and wait for the right moment.

Have a good evening. I'll see you tomorrow.

At the time of publication, DePorre had no positions in any securities mentioned.