The headline nobody wanted to see hit overnight: Israel retaliated against Iran for Iran’s drone/missile strike on Israel. The news everyone was hoping to hear has been spread this morning: Israel’s strike was a “limited” strike that didn’t cause any real damage.
The connection between these two reports was made in the Treasury market (yields down sharply at first before rebounding), the oil market (up sharply at first before falling), and the equity futures market (sharp pullback before rebounding).
Notwithstanding the limited response, we wouldn’t say that there is an all-clear signal being sounded by the market, but there is a relief signal being sent that things weren’t worse and that maybe, just maybe, the tit-for-tat strikes will come to an end and a wider regional conflict will be avoided.
Currently, the 2-yr note yield is down five basis points to 4.97% (after hitting 4.88% overnight) and the 10-yr note yield is down five basis points to 4.60% (after hitting 4.50% overnight). WTI crude futures, which topped $85.00/bbl overnight, are down 0.7% to $82.15/bbl. Brent crude futures, which flirted with $91.00/bbl overnight, are down 0.7% to $86.51/bbl.
The S&P 500 futures, which were down as many as 86 points overnight, are up one point and are trading in-line with fair value. The Nasdaq 100 futures are down 27 points and are trading 0.1% below fair value. The Dow Jones Industrial Average futures are down 22 points and are trading fractionally below fair value.
It has been quite a turnaround that has featured some short-covering activity and a chasing bid to get in on the rebound action.
Still, the stock market won’t be flying high at the open. The element of geopolitical uncertainty remains alive and well, as does the rate cut uncertainty with Minneapolis Fed President Kashkari (non-FOMC voter) suggesting the Fed could possibly wait until 2025 to cut rates, according to Bloomberg.
There is also an earnings-reporting drag from Netflix (NFLX), which topped Q1 estimates, but issued some relatively disappointing Q2 revenue guidance while noting it will no longer provide quarterly membership or average revenue per member numbers beginning with the first quarter of 2025. NFLX is indicated 7.0% lower.
Other earnings reports from Dow components American Express (AXP) and Procter & Gamble (PG) haven’t helped the market much, even though both were better than expected. AXP is up 0.9%, but PG is down 2.5%.
Yesterday marked the fifth straight loss for the S&P 500 and Nasdaq Composite, as the indices once again showed a vulnerability to selling into strength and a sensitivity to rising rates. The 2-yr note yield flirted with 5.00% throughout yesterday’s session.
It is back doing that again this morning after a volatile overnight trade that was filled first with geopolitical angst and then relief. Nonetheless, the capital markets continue to lack the sense of comfort they had during the five-month rally that started in late October because various points of agitation have yet to be put to rest.
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Originally Posted April 19, 2024 – Volatile trade after Israel strikes Iran
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