Quick Take
- Markets rallied on geopolitical relief
- Oils prices crashing
- Earnings season is coming
- Rising inflation
What Happened This Week
Stocks surged midweek after a U.S.–Iran ceasefire, with the Dow jumping ~1,300 points and the S&P 500/Nasdaq up ~2.5–2.8%. Oil fell over 13–15%, easing inflation fears and boosting sectors like travel, tech, and consumer stocks. The big gains triggered a potential uptrend, but investors are cautious about whether it will hold. Big companies (banks, tech, industrials) start reporting, and their results will likely determine if the rally continues or fades. Rising inflation, oil volatility, and Middle East tensions are still risks, even after the rally.
Why It Happened
The only real reason the markets increased this week is due to the rumor of the war ending. With the loosening of the Strait of Hormuz, oil could flow again, cost of transportation of goods decreased, and the unsettling outlook on the brink of a looming war seeming to come to an end eased investors. However, as we stated in last week’s newsletter, prices go up and down even without news, and I would caution about going all in on the market just yet.
Why does that matter for stocks?
There are three big reason to focus on, on why the market moving. The market focuses on how the economy is doing and how individual companies are doing. The third is the future opinions on the first two. With an easing of the mind for investors, the outlook seems brighter, meaning more people buy causing the outcome to come to fruition. This can be temporary though.
Why This Matters for You
With the recent hike to the market as seen on the RSI indicator from our Dashboard at Quick Quant, the rapid rise in prices is nearing the bounds of being over sold. With such a rapid rise, it can be expected to fall, and fall deeper than the prior lows.
Likewise, the Fibonacci indicator shows the current price above, and arching downwards. It can be a safe assessment that the market is over bought and the price to fall again.
Lastly, we have seen the geopolitical swing in both directions very sharply, and very aggressively. The current peace talks and ceases fire in the middle east could be “blown up” if one party decides to stop the talks between countries. This would mean that the oil prices and all the after affects would go right back to costing significantly more, lowering the overall market.
Big Picture Trend
If the war was to continue (or at least cease fire talks stop), we can estimate a large dip in the market. Even if they continue, the overall market may settle a little before continuing up and to the right.
We are essentially waiting to see what happens and the big players are doing the same.
What to Watch Next Week
I would keep my eyes on the following:
· News in the middle east
· The Fed raising or lowering rates
· Unemployment
· Earnings (especially banks and government contractors)
Simple Action Steps
For long-term investors, buy and hold the market as you always have done. In 30 years, this conflict will be but a blip on the map. If you don’t believe me, take a look at the S&P 500 Index and point out where the GFC was, the dot.com bubble was, and even where the GWOT wars started and ended.
For short term investors, buckle up, its going to be a roller coaster of emotions full of great wins and losses.
Final Thought
This is a transitional market. With the relatively newly elected cabinet, geopolitics, the markets behavior the last 5-years and many more topics, the market is settling a bit, but fear has entered the system. In the meantime, try and find value stocks and do a deep analysis.