Trump Prompts Volatility With Shallow Attempt to Smooth Markets Amid Iran Conflict

Donald Trump

Here it is, only Monday morning, and before the cash markets even opened, U.S. equity futures went from being down 1% to up over 2%.

I was in the process of cutting some hedges as the headline came out (did not manage to cover them — it's a crazy world where one minute early in the morning makes a 3% difference).

I am now putting back some hedges.

The president’s post on Truth Social about a resolution to conflict in Iran is a step forward (potentially), but I don’t think is as good as the market initially seems to think.

In this post, the “pause” that President Trump alluded to would only be for strikes on power plants and energy infrastructure. The power plants were really only put “on the table” with the “ultimatum” social media post he sent on Saturday. Power plants as targets brings up a lot of humanitarian questions. The ultimatum also triggered pretty strong responses, in terms of threats, from the Iranians.

Five days is interesting, too. That would be five more days for the marines to maneuver into position, five more days to attack the Iranian coast, trying to eliminate the threat to the Strait of Hormuz. It puts us back to Friday night (if the five days is even real), which seems to fit “our” pattern: try and do things over the weekend and if they don’t work, back down to soothe markets as much as possible.

The questions remain:

What does this do for encouraging shipping through the strait? We don’t know without an Iranian response.
If the U.S. continues to attack Iran’s military, will it contain the counterattacks or escalate?
Will Iran even confirm that the talks have been ongoing and going well?

The Iran conflict could come to a good resolution quickly, but this seems more of an attempt to smooth markets than real progress.

We will know more in the next 24 hours as we see what each side does, during this “five day” window.

Separately, there are a lot of issues for the market to answer:

Global bond yields going higher isn’t helping anyone.
While the U.S. is protected to some degree, being energy independent helps, but we are not isolated. I keep arguing that energy independence is not an oasis (all good), nor is it a mirage (there is truth to the benefits).
The consumer, already concerned, seems likely to be less interested in spending with rates, inflation and potential job pressures.
How does the data center and AI spend look going forward? Especially with even higher energy costs (not sure how quickly those are coming down).
Finally, what parts of the supply chain (especially for agriculture) have already been impacted enough that we will be feeling the effects of the last three weeks down the road?

It will take more than one Truth Social post to turn me less cautious here.

I will be adding duration to my portfolio (probably (TLT) – longer dated treasuries, though possibly TUA, which is basically a leveraged play on twos). I think we are nearing the point where either oil goes down (which is good for rates) or people start talking about recession (which is also good for rates).

Good luck, stay patient and cautious. To me, that means staying small and nimble. Do not panic, but also, do not be overly aggressive.