Investors Are Lost in the Fog of War As Hostilities Intensify
As energy infrastructure damage continues, don't fall for predictions about when the conflict will end and when the market will turn.
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Global Energy Markets Brace for Iran Oil Sanctions Next Month
The market is under pressure again on Friday morning as hostilities between Iran and Israel intensify. Overnight, Israeli forces killed Ali Mohammad Naini, the spokesman for the Islamic Revolutionary Guard Corps, in an airstrike in Iran. The strike came shortly after Naini had publicly dismissed Prime Minister Netanyahu's claim that Iran could no longer produce ballistic missiles. Iran responded with a fresh wave of missile strikes targeting central Israel and the Jerusalem area. Iranian missiles also struck Israel's oil refineries complex in Haifa, damaging critical infrastructure. Oil prices are higher as damage to energy infrastructure continues to mount and uncertainty about the Strait of Hormuz persists.
This news flow makes it nearly impossible for investors to effectively discount what is happening. No one knows what comes next, how long this lasts, or how much damage to global energy infrastructure accumulates before a resolution arrives. That uncertainty is a genuine market negative, because it prevents investors from pricing in the ramifications and determining fair valuations for stocks.
Related: It's Quarterly Expiration and Rebalancing Week. That Magnifies Everything.
Resist the Prediction Game
Despite the tremendous uncertainty, there is no shortage of people on Wall Street confidently telling you what will happen next. An endless parade of experts will give you a precise timeline for when the war ends, where oil goes, and when the market bottoms. It is worth remembering that these are the same experts who did not see any of this coming three weeks ago.
The best thing you can do is resist the pull of the prediction game entirely. Embrace the fact that you do not know what will happen. The market could find a bottom today or it could struggle for weeks or months. Anyone who tells you otherwise with confidence is selling something.
What I Do Know
We are in a down cycle and eventually it will end. That is not a prediction. It is a fact of market history. Trying to guess the exact low is a poor trading strategy. Traders who focus on calling the precise bottom typically rack up significant losses without gaining any meaningful advantage. When the turn does come it will be significant and sustained. There will be plenty of time to put capital to work, especially for investors who have done the preparation work and have a clear shopping list ready. This is a party you want to arrive at a little late rather than standing at the door waiting for it to start.
The Mispricing Is the Opportunity
The poor action does create something valuable. Everything is being sold regardless of merit. Stocks with strong fundamentals and good charts are being thrown out alongside the genuinely impaired names, because index and exchange-traded fund selling do not discriminate. That is exactly the kind of environment that creates significant mispricing. Value investors are sitting on the sidelines waiting for the smoke to clear and when they come back in they will be buying stocks that have been unfairly punished.
The morning looks miserable, but we have consistently seen intraday improvement when there is negative overnight news. Keep in mind that the risk of more negative developments over the weekend is real and that may keep some buyers cautious heading into the close today.
At the time of publication, DePorre had no position in any security mentioned.
