Trump Card Turns Markets on a Dime as Stocks, Bonds Stage Substantial Recovery

President Trump’s tweet turns the market on a dime. Again. Stocks and bonds were headed down hard this morning, after Trump had threatened on Saturday to escalate the attacks in Iran if the Strait of Hormuz wasn’t opened in 48 hours. Then, at 6:23 am, he posted a note on TruthSocial saying he was postponing the proposed escalation and that significant progress had been made with Iran towards a complete and total resolution of hostilities. Stocks and bonds soared, and energy prices plummeted. So far, Iran has denied Trump’s version of the progress, but the market has demonstrated where it is headed when a final resolution is reached. 

The rally has been substantial. The S&P is up 1.9%, the NASDAQ +2.1%, Dow +1.9%, Russell 2000 +3%, even-weighted S&P + 1.8%, Magnificent 7 +2.2%. The US 10-year dropped 6bps, the 2-year 4bps. WTI crude oil is down 10%, gasoline -8.6%, and natural gas -4.2%. International markets are making similar moves. Fertilizer companies have dropped, while cruise lines and airlines have jumped.

In other commodities, precious metals also staged a similar recovery. Agricultural commodities are modestly lower. Crypto also bounced with Bitcoin dipping below $67.5K over the weekend and is now back to $71.3K. The US Dollar Index almost hit 100 premarket on higher yields and has pulled back to 98.6.

While this upside move is very welcome, the whipsaw of markets is certainly unsettling for investors. The VIX, down 2.3 to 24.5, after hitting 31 premarket, remains very elevated. No one would be shocked if fighting in Iran escalates again, even in short days. In the medium term, there has been substantial damage to Mideast energy assets, which will take many months to repair. It still appears likely that crude oil and distillates will remain elevated for some time, even if a peace agreement is reached soon.

Clearly, the trend remains volatile.