Risk-on Markets Have Priced in the War’s End - What Next?
Investors are looking across the valley.
Key Takeaways
Stocks Recoup Pre-War Losses: The stock market rally enjoyed a solid extension yesterday and closed with strength. It was the tenth straight advance for the Nasdaq (longest win streak since 2021) and the ninth up day out of ten for the S&P 500 and small-cap Russell 2000. The indexes aren’t yet at record highs but have essentially recouped their Iran war losses — while Energy stocks have virtually retraced their wartime gains. Even the bond market is back on an even keel after yesterday’s rally, and, at 4.26%, the 10-year T-note yield is just 6 basis points away from making a run at the 50-day moving average.
Strong Breadth as Growth Stocks Lead: The S&P 500 rallied +1.2% and is now within striking distance of its all-time high (believe it or not, just -0.2% away from the January 27th closing peak). Since March 30th, the index has rallied by nearly +10%. A repeat of the post-“Liberation Day” snapback a year ago. Market breadth was strong again, with Chips, Biotech, and aggressive growth stocks leading, and Airline and Travel plays coming along for the ride (with fuel prices reversing from the nearby highs). Semiconductors, paced by Intel, have broken out.
Peace Talks Are Back On: What has caused the jubilation is a second round of peace talks coming in the days ahead of the two-week ceasefire deadline — the naval blockade of Hormuz seems to be working (in the sense that the mullahs are panicking and a trail is being blazed to end the conflict). So, the risk-on trade is back on, even with the Strait still mostly closed and oil prices, while coming down, still elevated. Investors clearly are looking through the proverbial valley, and why not, since the President stated that he thinks we could have a deal by the end of the week!
