After the worst month in the markets in a year, March opens down hard, but much better than pre-market lows. It appears that the buy-the-dip crowd was out in force this morning. was as high as 25.2 overnight and dropped to below 22 in the first 10 minutes after the open. almost hit $75/bbl but has pulled back to $71/bbl. is up 4% to $3/mcf. is up 2% to $5,357/oz. Defense-related names are up 3-5%.
The bond market is moving the other way. On Friday, we saw US Treasury yields drop to multi-month lows on the prospects of the Iran situation breaking out. Today, it’s moving back the other way on the inflation threat of the much higher energy prices. The US 10-year had dropped to 3.94% on Friday, the lowest since Jan’24. Today it’s back up to 4.04%. The 2-year was as low as 3.37%, now 3.45%. The has jumped 0.85 to 98.42, the highest level this year.
Industrials are in the green thanks to defense stocks. Travel stocks are taking heat, especially cruise lines. Interestingly, crypto is higher, with Bitcoin jumping from $65.5K to $69.4K
Clearly, it’s an evolving situation. The volatility remained very elevated. The shooting in Iran has spilled beyond Iran and Israel. The Strait of Hormuz, where 20% of exported crude oil moves, along with significant LNG, might become closed and lead to even higher energy prices.
The pendulum has already started to swing the market modestly lower. Global equity markets are 2% lower. European bond yields are higher on the prospects of energy-driven inflation. US credit spreads have widened, both Investment Grade and High Yield. Private credit concerns continue, with financial services now down 6.1% YTD, the weakest sector by far.
The buying opportunity of this latest geopolitical risk appears to be short-lived. The energy price problem may be more long-lasting. The trend remains volatile, creating opportunities for nimble investors. The underpinning remains a growing economy and strong earnings, which will eventually lead to higher equity prices.
