Our Plan of Action Amid Israel-Iran Conflict, G-7 Summit and the Fed Meeting
We're weighing potential trade deal progress vs. a potential new tailwind for inflation.
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Based on early trading, stocks look to rebound from Friday’s selloff as investor focus widens to include potential G-7 trade deal progress even as Israel-Iran military strikes continue. Both countries are targeting the other’s energy facilities.
Iran also said it is considering shutting down the Strait of Hormuz, a key route for the global oil market. About one-fifth of the world’s oil is transported through the strait on its way to global markets, according to findings from Goldman Sachs. The firm goes on to estimate that a closure of the strait could push oil prices above $100 per barrel.
We will want to see if Iran can close the Strait or if this is a negotiating ploy to limit others from entering the conflict. Should the Strait be closed or if tankers in the region are targeted, leading oil prices higher, it would be the latest tailwind for inflationary pressures.
Eyes will remain focused on Israel-Iran, even with both the G-7 summit in Canada this week and the Fed’s policy meeting concluding on Wednesday afternoon. The market is also assessing the possibility of trade deal progress this week at the G-7 summit. As we think about the conversations to be had at the G-7 we are also remembering President Trump’s pledge to complete dozens of deals by a July 9 deadline and the timing for his “big, beautiful bill," which sounds like it may slip past the ambitious July 4 deadline.
Over the weekend Trump reiterated his threat to reapply tariffs if agreements can’t be reached, but there are signs that progress is still possible. Canadian Prime Minister Mark Carney is scheduled to hold a bilateral meeting with Trump this morning. After meeting on Friday, Japan and the U.S. agreed to accelerate talks toward reaching a mutually beneficial deal and to meet in Canada.
We are also seeing reports that to avoid higher tariffs on cars, drugs, and electronics, the European Union is ready to cut its tariffs on U.S.-made vehicles and possibly change technical or legal hurdles to make it easier for U.S. manufacturers to sell their cars in Europe. In exchange, the EU is offering the U.S. tariffs of 10% across all of the EU's exports into the U.S. The EU’s offer, however, is also being reported as not permanent, which suggests a bridge to avoid higher tariffs following the July 9 deadline as negotiations continue.
Our Plan of Action
Putting all this together, there are multiple pieces on the stock market chessboard. Depending on their movement, we could see the market rebound, move sideways, or give back some of its gains since the early April bottom.
Once again, friends, we are in the land of the stock market trading based on the latest headlines and that means waiting for a clearer picture of what’s ahead. During this compressed trading week, we’ll be taking it day by day and making adjustments as needed.
With that in mind, later today, we’ll publish an updated table of consensus EPS forecasts for the Pro Portfolio’s holdings that will also include current relative strength index (RSI) levels and beta figures. If you missed our conversation about beta and how it can help explain a stock’s movement relative to the market, you can find it here. We also have Office Hours today after the market close from 4 p.m. to 5 p.m. in the Portfolio Forum.
