As the Iran War Sends Mixed Signals, I'm 'Mining' for a Few Trade Ideas

Equities staged a large relief rally on Monday, albeit one with some profit taking later in the day. Still, all the major indexes closed with better than 1% gains to start the new trading week. The small cap Russell 2000 regained all of its 2.26% loss from Friday that pushed the index into official correction territory.

The faintest of hints and commentary Monday that there is a chance for de-escalation in the regional war going on in the Middle East was enough to push the WTI oil benchmark down by over 9%. Gold fell more than 3.5% on the day to push the yellow metal into bear market territory, joining Bitcoin and other cryptocurrencies that have been deep in a bear market for months now. Equities gave up a chunk of the gains from the opening day of the week on Tuesday as no firm signs were forthcoming that a way out have been found in reopening the Strait of Hormuz. Today, stocks look set to surge on news the administration has presented a "15-point plan" to Iranian leadership to end the war. Whether this leads to anything but the latest series of talking points is anybody’s guess at this time as the war and markets seemed to be driven by the latest Truth Social post than anything else.

More bad news continues to emerge from the private credit markets where Apollo Global Management (APO) became the latest notable firm to gate redemptions requested from a private credit fund. Apollo only will return 45% of the redemptions sought from a $15 billion fund it runs. Ares Management Corporation (ARES) also announced a similar portion of redemption requests on Tuesday. The private credit sector is developing a Hotel California feel to it, for those Eagles fans out there.

Given these factors, I continue to be extremely cautious on the overall market while still putting some dry powder to work incrementally. I added a bit to my covered-call holdings in Newmont Mining (NEM) yesterday. The stock of this gold miner is down just over 25% from its highs in late January, but still above where I established a stake in this name in the fourth quarter. The State Street SPDR S&P Metals & Mining ETF (XME) is down a similar percentage over the past two months.

The mining sector has been hit by a double whammy. The recent bear markets that have developed for gold and silver as well as a spike in energy prices, which is a key operational cost driver for the industry. If the conflict ends with Iran, the industry should benefit from both a steep fall in energy prices and most likely a rebound in precious metal prices. With the pullback, NEM trades at just 10-times projected forward earnings and has a one percent dividend yield.

For those traders who believe more strongly that a ceasefire in the Middle East will soon be implemented, take a look at some airline stocks like American Airlines (AAL) and Southwest Airlines Co. (LUV) for trades. They have posted similar declines to the miners as jet fuel prices have soared. If the conflict ends soon these stocks should have substantial rallies. In addition, it looks like the Transportation Security Administration bottleneck is on its way to being resolved. This funding impasse has resulted in long lines in major airports and generated considerable negative headlines. I am not quite there yet on the industry but some might be.

I am hoping that within a month this regional conflict will be over, and investors can assess the short- and medium-term damage from this war on supply chains and key assets in the region. And reduce a major current source of uncertainty for the global economy and markets.

At the time of publication, Jensen was long NEM.