At this point, there is no telling how the fight over Hormuz ends.
The US and Iran tried talking but that didn’t work and now we’re faced with the prospect of an endless war. Despite that, markets are taking it in stride, assured that Trump will back down and return to the negotiating table. WTI crude oil is up $2.31 to $73.74. The S&P 500 is down 0.3%. Treasury yields are up 2 bps across the curve.
If you look at the stock market, the bigger concerns are in AI and chipmaking rather than the war. Intel is down 4.5% today as chipmakers lag following a rout in SK Hynix in Korea. Texas Instruments, Oracle, Cisco and Nvidia are also lower. Memory names Micron (-6.6%) and Western Digital (-7.6%) are major laggards as the huge volatility continues in those names.
What worries me about the war is the seeming impossibility of making a deal. Israel showed no willingness to exit southern Lebanon while the US and Iran both repeatedly turned to military measures from the start of the MOU. The US has no appetite for a ground war and an air/naval war seemingly did nothing to spark regime change in Iran.
The US may now turn to a harsh economic war while Iran may try to close Hormuz or attack the infrastructure of neighbouring Gulf countries. If that happens, it will become a war of attrition with consumers suffering from higher fuel prices and supply shortages, including industrial materials like sulfer and fertilizer.
All that argues for buying oil or oil companies and it’s compounded by high short interest in crude. But everyone is reluctant to make that trade because of Trump’s penchant to talk down prices and/or promise peace.
Technically, there are signs of a bottom at pre-war levels. The drop in oil late last week found support and now it’s turned upwards again. It will have to get above Wednesday’s high of $76.08 to get any momentum but there’s a fair chance at $80.
This article was written by flc97fe4880a4b454993821fe0b770a597 at investinglive.com.