Good morning,
As we enter the sixth week of war, markets have now delivered four consecutive down weeks followed by last week’s rebound. The overall picture, however, remains largely unchanged. Volatility is elevated, with markets reacting more to the daily flow of oil through the Strait of Hormuz—which has been gradually improving—and to energy prices, rather than to shifting political rhetoric or repeatedly deferred deadlines around fully reopening the Strait.
The now-familiar pattern continues: a Sunday night futures sell-off as Asian markets open, followed by a Monday morning recovery despite most of Europe being closed for the holiday. As of 8:00 a.m. ET, futures are roughly unchanged. There is little consensus on how or when this conflict will end, but there does appear to be a growing consensus embedded in asset prices—that the outcome will be shorter in duration rather than prolonged.
Part of that may be the result of years of “buy-the-dip” conditioning. More importantly, macro markets appear encouraged that global energy supply has not seized up. Rerouting efforts, combined with a steady trickle of shipments still moving through Hormuz, have so far prevented the kind of disruption that would materially alter the economic outlook.
On the economic front, Friday’s nonfarm payrolls report showed a rebound in job creation, with hiring trends improving in the first quarter as labor strikes ended and weather disruptions normalized. The unemployment rate declined, though largely driven by a drop in labor force participation to levels not seen since 1977. Wage growth moderated, suggesting no renewed inflation pressure from the labor market. Taken together, the data likely keeps the Fed on hold for now.
As risk managers, we cannot predict the path of war. Our discipline is to observe how markets respond to events—and what those responses signal about trend and change in trend. Prior to the conflict, we were operating within a mature—arguably aging—bull market that remained intact. Six weeks into the war, that message has softened. We would characterize the market today as neutral or trendless, but importantly, not yet signaling a confirmed downtrend.
Be well,
Mike