(March 10): Wall Street staged a dramatic comeback, with stocks and bonds rebounding on hopes the 10-day-old Iran war may be nearing a conclusion. Oil tumbled in post-settlement trading after earlier topping US$100.
The S&P 500 climbed 0.8% as President Donald Trump told CBS the conflict is “very complete, pretty much” and the military operation is “very far” ahead of its initial four- to five-week time frame. The equity benchmark erased an intraday loss of over 1.5% for the first time since April. US crude dropped to around US$87 in late hours. Ten-year Treasury yields halted a five-day increase.
The whipsaw session underscored how exposed markets remain to every development in the Middle East conflict, with a single headline enough to reverse billions of dollars in losses. Volatility shows no signs of letting up as investors weigh a fast-shifting geopolitical conflict with no clear trading playbook.
“We expect markets to stay very short-term focused, volatile and headline-driven as the conflict plays out this week,” said Carol Schleif at BMO Private Wealth.
A wild ride in energy markets continued on Monday, with oil rocked by intense prices swings as traders parsed through all the moves in Iran and the impacts on global supplies.
Group of Seven finance ministers said they were ready to take any steps needed to support energy supply, including releasing strategic oil reserves — although the group isn’t at the point of doing so yet.
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Meantime, Trump is expected to review a set of options to tame oil prices, including restricting US exports and waiving some federal taxes, Reuters reported.
“I have a plan for everything,” Trump told the New York Post.
There’s a “push/pull” between the real-world issues causing higher oil prices, inflation and growth fears versus the undercurrent of Fomo (fear of missing out) that keeps an underlying bid in stocks, according to Steve Sosnick at Interactive Brokers.
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“Fomo is labelled as fear, but it’s really greed, and I would assert that there is still plenty of greed out there relative to fear,” he added.
Still, US stocks are facing a growing risk of a sharp rout this year, said Ed Yardeni, who updated his outlook for what he describes as “fast-moving times”.
The founder of Yardeni Research raised the probability of a meltdown to 35% for the rest of the year, up from 20%. He also slashed the odds of a melt-up — a rally driven more by investor enthusiasm than underlying fundamentals — to just 5% from 20%.
Traders are unprepared for a correction in the S&P 500 that could see the gauge falling as much as 10% from its peak as a result of the war, according to JPMorgan Chase & Co’s Andrew Tyler, who turned “tactically bearish”.
“Although volatility may feel uncomfortable, could rise from here, and possibly cause a near-term drawdown in stocks, volatility in itself tends to be brief when it reaches more extreme levels,” said Anthony Saglimbene at Ameriprise. “And, more often than not, the extreme volatility provides investors with a solid long-term entry point to buy stocks rather than sell.”
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