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Briefing.com Summary:
*President Trump extended a key military deadline to April 6, but the market isn't enthused by that like it once was.
*Oil prices and Treasury yields continue to rise, sapping investor conviction.
*Markets are close to some red lines we don't think the president will like to see crossed.
If you want to take the market's pulse on where it stands with the Iran war, this morning provides a good opportunity.
Recall on Monday how the equity futures market soared, oil prices plummeted, and Treasury yields dropped when President Trump said there had been good negotiations with Iran and that, consequently, the U.S. would be holding off bombing Iran's power plants and energy infrastructure for a five-day period.
Flash forward to today. The equity futures are down, oil prices are up, and Treasury yields are rising after the president extended his deadline to April 6 because talks "are going very well." Market participants, literally, aren't buying it.
Currently, the S&P 500 futures are down 34 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 178 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 210 points and are trading 0.5% below fair value.
There is a reluctance to accept the notion that the Iran war is nearing an end without creating a lasting economic disruption. The market could potentially get its mind around that, but there isn't enough two-way signaling at this point to convince the market that Iran is aligned with the U.S. (and Israel) in ending the hostilities and providing safe and unimpeded passage through the Strait of Hormuz.
So, the market is starting today with an anxious tone, entirely because oil prices and Treasury yields are still rising. WTI crude futures are up 2.6% to $96.89/bbl; the 2-yr note yield is up three basis points to 4.01%; and the 10-yr note yield is up five basis points to 4.47%. And it will likely end the day on an anxious note, cognizant that a well-timed Truth Social post by the president could change the whole dynamic by Monday morning, especially if the markets remain in a state of suffering today.
We are certainly getting close to what we thought would be some red lines the president wouldn't want to see the markets cross. Those lines identified in The Big Picture column we posted on March 5 were $100.00/bbl oil, a 4-handle on the national average for gasoline prices (we're at $3.98 now, according to AAA), a 4.50% 10-yr note yield, and an S&P 500 that trades below 6,300.
Even if President Trump chooses to take the off-ramp, Iran may just choose to keep driving on a path that impedes travel through the Strait of Hormuz. It is a highly uncertain situation, and market pricing this month has reflected that.
The major indices are down between 5% and 6%; losses for 10 of 11 S&P 500 sectors range from 4.3% to 9.6%; the energy sector (+10.5%) has been a big winner; oil prices have surged 45%; the 2-yr note yield has risen 62 basis points; the 10-yr note yield has jumped 50 basis points; and the U.S. Dollar Index is up 2.6%.
Expectations for another rate cut this year have been ushered out, while expectations for a possible rate hike before the end of the year have been ushered in. That understanding has undercut most stocks, and it has fostered a breakdown in key leadership groups, as well as the S&P 500, which is trading below its 200-day moving average (6,635).
The market has some work to do to reclaim its swagger, and it is going to need help on the war front that it is currently not getting.
