Ding Dong, the Wicked Warlock is Dead (But at the Expense of Risk-on Assets)
This is a nail-biting time, but only for investors who haven't dug into the history books showing that one should never alter their portfolio based on geopolitics.
Key Takeaways
Geopolitical Headlines Are Poor Trading Guides: The risk-off response to the Iran war is predictable, with the oil price spiking sharply. One piece of advice based on the historical record: never let geopolitics get in the way of your investment decisions. Had you bet against the stock market from the last military conflict which lasted around two weeks in June 2025, you would have made a bad decision because the S&P 500 point-to-point rallied +2% and if you established a long position on oil, again, it would have been a mistake because WTI actually declined from $73 a barrel to $64 for a -12% decline. There are countless other examples.
Markets Have More Reasons to De-Risk: Talk about coming off a week of de-risking, fueled by other “event risk”: (i) a BlackRock private debt fund cutting its dividend, (ii) a private credit fund overseen by Apollo marking down the value of its assets, (iii) U.K. mortgage firm Market Financial Solutions warning of a $1.3 billion shortfall on collateral backing their loans and (iv) JP Morgan strategists publishing a report concluding that up to $150 billion of U.S. CLOs are at risk of AI disruption.
Treasuries Rally Without Fed Help: The 10-year T-note yield closed the week and month at 3.94%, down -34 basis points since February 4th, and the lowest level since last October 3rd — and with no help from Fed speak. I was going back-and-forth with Walter Murphy on the weekend, and the chart patterns have recently turned so constructive that he sees potential for a retest of a 3.6% yield on the 10-year T-note — notwithstanding today’s mild yield backup.
