Stocks opened down materially, as surged to new highs on the prospects of extreme escalation in the Middle East, which may result in long delays in the recovery to pre-conflict flows of crude oil and other petrochemicals. Hope remains that Trump’s brinkmanship will produce a last-minute agreement to resolve the situation, or perhaps another postponement of the threat to destroy Iran’s domestic infrastructure.
The damage is very U.S.-centric, where the World ex-U.S. is still up 4.5% YTD. Keeping things in perspective, while the S&P is down 3.4% YTD, LTM is still +30.4%, albeit the World ex-U.S. is +39.5% LTM. For the trailing 3 years, the S&P is up 61.0%, the World ex-U.S. is +38.2%. So, while this is certainly trying times investors find themselves in right now, over longer investment horizons, things have been going quite well. Keep in mind the S&P hit an all-time high just this February.
It remains somewhat perplexing that is now so much higher than , which is at $110.3/bbl when traditionally Brent traded at roughly a 5% premium to WTI. Of note is that the future contracts for crude remain elevated, with August delivery of WTI at $84.5, a reflection of expectations for an extended period of high energy prices.
Interest rates are modestly higher today, and the U.S. dollar index is relatively flat at 99.7. It’s interesting that corporate credit spreads have been falling since the end of March, though they are making a strong move wider today.
No one would be surprised if Trump postpones the deadline, despite his insistence that he won’t do that. Or that Iran blinks. If the threatened attack actually takes place, it would seem likely that we may see more downside volatility in the short term, as the next step carries high uncertainty. If a resolution is reached, expect a major rally. Interesting times. Buckle up.