There is a major market correction in motion. Clearly, the trigger for the correction has been the Iran conflict. But if that was all that was happening, the damage wouldn’t be so severe.
The Iran conflict is so much more than other Mideast conflicts because of the Strait of Hormuz element, where even though it is not technically closed, insurance carriers have pulled coverage, so ships won’t move through it. That’s 20% of seaborne crude oil plus major LNG shipments. In addition, Iran has attacked refining and energy loading assets in the region, creating longer-term problems for the energy sector. Higher energy prices mean higher inflation on a worldwide basis. Fed rate cut hopes are weakening.
Other issues roiling the markets currently include the unwinding of the Trump tariffs that the court has ruled must be returned. There is also an ongoing major correction in private credit, where investors have become wary of valuation marks in the portfolios and are pulling money back out and in some cases have been told redemptions will be limited. , a major player in the sector, is down 18.5% in a month, down 52.6% LTM.
The meltdown bottomed after the first hour, when dip buyers finally stepped in. There were a couple of winners today: delivered a strong beat on the bottom and a beat on the top, and had good guidance. The shares are up 4.6% today, +21.2% YTD, albeit -1.9% LTM, and -31.3% for 5 years. had a miss on the top but a solid beat on the bottom and a better outlook than expected. The shares traded as high as +7% on the news, holding on to +4.3% for the day, -3.8% YTD, -25.8% LTM, -37.4% for 5 years. Clearly, a couple of struggling retailers bouncing on turnaround hopes.
While we had dip buyers step in and cut losses materially, it remains a very down day. That interest rates are modestly higher – both the and +2bps – is inconsistent with recession fears, most likely due to the energy-driven inflation fears.
For now, the trend is clearly negative, but it should be transitory, assuming the Iran conflict is resolved in weeks and not months. No one is speaking of earnings estimates coming down.
We are only a couple of hundred points away from the S&P’s 200-day moving average, which, if broken, will bring some technical selling. If the economy grows as expected and earnings hold, this correction will be looked back on as a buying opportunity.
