Market Priced for a Trump Victory Lap in Iran Update Speech

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The indices did a fairly good job of building on Tuesday's powerful session. Breadth was around 60% positive, and the S&P 500 added a 0.75% gain on top of the nearly 3% move on Tuesday. There were solid gains, but some selling hit at midday, and the close was at the lower end of the intraday range.

What is most interesting about this action is that investors seem quite confident that the Iran situation is rapidly improving despite a long list of issues that are far from being resolved. There is anticipation that President Trump will proclaim "mission accomplished" in his speech on Wednesday night, and that will be a further buying catalyst for the market.

What We Know About Wednesday's Trump Speech

A White House official confirmed that on Wednesday, Trump will give an update on the progress of Operation Epic Fury, which the administration says is "meeting or exceeding all of its benchmarks."

He will highlight the military's success in achieving its stated goals: destroying Iran's ballistic missiles and production facilities, annihilating Iran's navy, ensuring Iran's proxies can no longer destabilize the region and guaranteeing Iran cannot obtain a nuclear weapon.

Earlier on Wednesday, Trump posted on Truth Social that Iran's president had asked the U.S. for a ceasefire, a request that he said he would consider only after Iran reopens the Strait of Hormuz. Iran's Foreign Ministry called the claim "false and baseless." Meanwhile, the aircraft carrier USS George H.W. Bush is heading to the Middle East along with three destroyers, and thousands of soldiers from the 82nd Airborne Division have begun arriving in the region. That doesn’t look like a military that is packing its bags and heading home.

Reality Behind the Optimism

The reality is that the Iran situation is still complicated and oil prices will likely stay elevated for some time. However, there is one key factor driving the market higher: Iran's offensive capacity has been essentially destroyed. That was the mission and it has been largely accomplished. It may take a while to wrap things up, but Iran, as a real threat to the rest of the world, has been greatly diminished.

That is the setup heading into the speech on Wednesady, and now the question is whether we are set up for a sell-the-news reaction when Trump says what everyone already expects him to say. He is going to go on at great length about the tremendous military success and tell us that Iran is utterly defeated. It will be a very positive and optimistic speech, but how much of that was already priced in on Tuesday and Wednesday?

There are still major obstacles, and if oil prices don't keep falling or more U.S. troops are deployed, there is likely to be another bout of selling.

Why a Pullback Would Be Healthy

The good news is that a pullback will not kill this nascent rally. In fact, it would be healthy if there were some retracement that leads to better support. We are a little frothy right now and overly optimistic.

I did a fair amount of selling on Wednesday to reposition and give myself more flexibility. I want to be much more aggressive if and when we have a technical follow-through day next week. I'm very optimistic about how things are developing, but very respectful of the likelihood of pullbacks and increased volatility. Watch for a potential sell-the-news response to Trump on Thursday morning.

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

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