Trump’s Weekend Threats Followed by Renewed Diplomatic Hopes
From a 10-day deadline to a 45-day truce?
Key Takeaways
The Stock Market Still Has Few Bargains: In a sign of these topsy-turvy times, consider that coming off the worst quarter since 2022, we experienced the best session of the year last week (on Wednesday). This is not really an investable stock market at the moment. The range of outcomes and fat tail risks are far too wide to have any conviction right now -- or to be putting on any large positions on anything outside of either cash or short-term bonds. One thing is for sure — even with all the angst and anxiety of the past five weeks, the S&P 500 still trades at 27x on a one-year-forward free-cash-flow multiple basis, fully +37% above the long-run norm. Bargains are few and far between (and the thing about cash flow is that there are no accounting adjustments made).
Oil Approaching Recessionary Levels: Polymarket bettors closed out last week putting the chances that U.S. forces will enter Iran by April 30th at 84% — up from 61% the day before. Betting markets are just that, but this is real money people are putting on the line. The risks look to be one way in terms of where oil prices are headed, and as I keep saying, a move to $120 per barrel on WTI will be the pain point for an iron-clad recession call, if past is prescient. With that in mind, the market-based odds that we reach that mark this month have risen to 65%.
Few Assets Are Priced for Recession: Every single recession in the post-WWII era, except for the 2020 pandemic, followed a major spike in crude prices. The average price run-up was a double, and that is why $120 per barrel is the key threshold this time around. From where WTI closed on Thursday, we are 85% there. Best to screen your portfolio to see what is priced for recession odds that high.
