Wk18 MacroTechnicals - Deal or No Deal?
Oil is rebounding amid a deal deadlock, rate expectations turning hawkish again, and markets are under-appreciating a stagflationary shift.
Two major issues are top of mind:
First — the Iran conflict.
After weeks of optimism from the Trump administration regarding the Strait of Hormuz (“SoH”) blockade being lifted, we have yet to see any meaningful progress or signals toward a settlement. This leaves the scenario of a continued deadlock—and its macro impact becoming more prolonged—too difficult to ignore.
Second — risk asset complacency.
Markets are behaving as if the conflict will be resolved in a timely manner. Bloomberg published an article last week titled “Five Reasons Global Markets Are Surprisingly Resilient Despite War in Iran”, which I’ve summarised below.
While I don’t think the market’s optimism around the first three points has been unreasonable up to now, it will become increasingly difficult to justify as it becomes clearer that an off-ramp or deal still looks far away. On Robust Earnings, latest FactSet numbers indicates that 84% of S&P 500 companies reported EPS beats, and 81% beating on Revenue - strong numbers, but downside risks are building for coming quarters.
While 49% of companies are issuing negative guidance, the Tech/AI theme remains a major offset. These companies make up ~20% of the S&P 500 by count, but ~40% by market cap. This makes it difficult to take a high-conviction bearish stance, as AI remains a multi-year structural growth driver. After all...
“Tech is growth when people are worried about growth”
- Tom Lee
As the S&P500 makes new all-time highs for another consecutive week, momentum and participation are clearly narrowing, with the AI theme doing much of the heavy lifting. This makes outright bearish positioning difficult. That said, downside risks still exist—but they need to be traded selectively and tactically, not broadly. The AI theme is not immune to a prolonged conflict, but I think it is worth keeping in mind from a strategy perspective when managing the stock portfolio, as well as the tactical trading book.
I'll be diving deeper into these themes further across geopoltiics, macro data, market technicals, as well as our tactical preferences and trading ideas.
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