Markets Lose Their Nerve
Obstacles remain despite growing optimism on Iran. Here's where things stand and what the CPI report could bring Wednesday.
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Trader Nervous
Investors are more optimistic about oil prices and a resolution of the Iran situation than they were on Sunday night, but Tuesday’s action made it clear that the path forward has plenty of obstacles.
The indexes closed near the lows of the day after a bout of volatility tied to fresh news about events in the Strait of Hormuz. After a strong run of sessions with impressive intraday recoveries, there was noticeably less confidence on Tuesday, and the market struggled to hold its gains.
The Strait situation remains fluid. Iran has threatened to attack any tanker attempting passage, and shipping insurance costs have surged to levels that are keeping most commercial vessels away, regardless of any U.S. Navy escort announcements. The physical disruption to oil flow does not resolve simply because Trump sounds optimistic. The infrastructure damage and the risk premium embedded in shipping rates will take time to unwind, even in the best-case situation.
This sort of news is what keeps the indexes and many individual stocks pinned in trading ranges. Monday's strong intraday action did establish some meaningful support levels, but the problem remains the same. There are few pockets of sustained momentum and constant rotational action makes it very difficult to build positions with conviction.
The Magnificent Seven Tells the Story
A good illustration of the choppiness is the Magnificent Seven ETF (MAGS) , which is trading near the same level it hit after a difficult session back on February 12. There have been some significant swings since then but no net progress, and that kind of directionless action wears on investor sentiment over time.
The Magnificent Seven is being pulled in two directions simultaneously. AI uncertainty created the first wave of pressure as investors reassessed the economics of the infrastructure buildout. The Iran war and the oil spike added a second layer. Both issues remain unresolved and the price action reflects that. Until there is greater clarity on at least one of them, the group is unlikely to provide the leadership the broader market needs.
Where Things Stand
Like many investors I am growing tired of this action. It has been difficult to do anything substantive for a while now. There are charts developing and interesting individual stories worth watching, but the overall market conditions do not justify making major moves yet.
Monday's intraday reversal provided the first step in a potential bottoming process. What we need now is energetic follow-through to change the character of the price action. That could happen, but it will likely require something meaningful out of Iran to trigger it. A de-escalation announcement with specifics would be the catalyst. Vague reassurances from Trump are producing smaller and shorter-lived bounces each time.
Wednesday morning brings the February CPI report. Expectations are for a 0.3% monthly gain and 2.4% annually on the headline, with core at 0.2% monthly and 2.5% annually. The risk of a hot reading is real given that the oil spike was not fully captured in the February data collection period. A surprise to the upside would quickly revive the stagflation conversation and add another obstacle to the market's already difficult path.
Have a good evening. I'll see you Wednesday.
Related: 2 Insulated Markets as Asia Oscillates on Oil
At the time of publication, Rev Shark had no positions in any securities mentioned.
