A Very Welcome Relief Rally, but Its Durability Is Not Certain
Is the war really “very complete?” What happened to “unconditional surrender?”
Key Takeaways
Rapid Relief Rally — But for How Long: All it took were these words from President Trump — “I think the war is very complete, pretty much” — to unleash a wild reversal in the risk-off trade. The key is oil prices coming off the boil. The primary issue is the durability of this newly-found relief rally.
Other Factors Easing Oil Markets: Other critical news included the emergency meeting between G7 finance ministers and the IEA, which authorized the largest coordinated release of strategic petroleum reserves in the IEA’s 52-year history (releasing between 300-400 million barrels from global reserves, 25-30% of the world’s 1.2 billion barrels of emergency stockpiles). Tack on the fact that there were an estimated 30 crossings on the Strait of Hormuz, which was still below normal but no longer a trickle, and with no response from the IRGC (perhaps getting low on drones).
Stock Market Remains Complacent: The VIX, at 23.7, seems to smack of a high level of confidence and complacency. It has yet to hit the 40 mark that would represent true capitulation. The other thing to consider is that the S&P 500 was sitting at 6,879 just before the onset of the war, lower than it was near the end of October. Ergo, the stock market was already looking wobbly before this conflict began. And if we do manage to emerge victorious from this war (understanding that we will see a relief rally), and we go back to focusing on what was happening prior, the situation was hardly constructive for risk assets.
