Market Is Pricing in a U.S. Victory Over Iran

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Crude oil moved above $112 per barrel on Monday but it didn't stop equity buyers from pushing all the major indices higher. The gains were muted but stocks were solid with about 60% in positive territory. The Russell 2000 tracked by the iShares Russell 2000 ETF (IWM) and the S&P 500 led while the Roundhill Magnificent Seven ETF (MAGS) lagged.

Ignoring the Damage

It is a confusing mix as investors hope that President Trump's threats to escalate hostilities against Iran may finally lead to some sort of resolution.

What is being ignored is that even if the Iran situation improves and oil supplies normalize, there is still a tremendous amount of economic damage being done. It is going to take months if not years to restore supply, and many countries are already feeling the impact of a wave of inflationary pressures.

Investors appear to be trying to stay ahead of potential news about a resolution in Iran, anticipating that something significant is about to happen. The fact that it may not do much for oil prices for a while just isn't a major concern right now.

Pricing In Victory

The bad news is that we are pricing in a victory over Iran, so if and when that victory comes, there won't be much upside left as the focus shifts to oil and the economic damage that will need to be addressed.

It is a difficult situation and I have no great desire to put money to work on a low-volume move with a questionable thesis. We appear to be pricing in something positive, but it is a risky bet given the level of uncertainty.

I'm not quite sure what to make of this market, but I do know that I'm not going to trust it until we see confirming technical action. If you are puzzled by the action, you are not alone.

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

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