The broader market is optimistic about a resolution in Hormuz and Iran despite mediocre and mixed signals from Washington and Tehran. The S&P 500 is up 1.2% in a continued rally from yesterday and it’s tough to hang it on any headline.
Trump has repeatedly indicate that the US is ready to declare ‘mission accomplished’ and leave Hormuz for others to clean up. That’s not exactly a great sign about reopening.
A report today said other countries could threaten Iran with sanctions if they don’t reopen but it’s hard to imagine that breaking the back of a country that’s been hit by 12,000 bombs in the past month.
But markets are the world’s great filters of information and I think it’s worth looking at longer-dated oil contracts. Here is WTI crude contract for December. Today it’s testing the lows from the fake headlines from when the US energy secretary said there was an escort through Hormuz.
Dec WTI
If you take this contract at face value, the price of oil has gone from around $58 to $72. That’s material but it’s an economic shock. If you zoom out a bit further, oil was around $64 for most of last year so it’s only an $8 increase.
Compare that chart to May WTI, which hasn’t come anywhere near the March 20 low.
That difference reflects a market that sees ongoing problems through May deliver but sees them clearing over the remainder of the year. So far stock markets and the economy, you’re pricing in a quarter or two of pain followed by a steady improvement afterwards.
Now that could obviously be wrong and Iran could blockade the Strait of Hormuz for months but the message from the crude market (and others) is that this is winding down.
As a trader, I think you want to consider that possibility and dig into some of the trades that have the most to recoup if that’s the case. Today’s retail sales data showed the US consumer was in fine shape ahead of this war and this week’s consumer confidence didn’t show much worry going forward.
Trump is also a President that’s relentlessly focused on boosting the stock market and no one can forget the rebound after Liberation Day tariffs.
