Peace Overtures
Price action today was dominated by Iran saving face by striking an empty US base in Qatar after notifying the US and Qatar of their intention, then stating they are willing to talk. That sure seems constructive, and in turn had oil down -7%, which admittedly only gets it down to prices of a week and a half ago.
That's a reasonable reason to buy, as it seems to remove a concern, at least in the near-term. Based on what I see, today I shifted to a modest net long from my very modest net short.t For what it's worth, there are some reports from Iran that there is no ceasefire deal, but they engage in quite a bit of propaganda, so I lean strongly towards believing there's a peace deal in the works, at least for a while.
Another point is that hedging this month hasn't been overly painful. I failed to ride the high beta train, but I considered that to be pretty risky. In terms of what I'm interested in buying going forward, I'm poking around low beta, high cashflow names that have been shunted aside in this risk rally. It was interesting to see in today's rally, low volatility stocks outpaced high beta, at 1.22% vs. 0.68% (SPLV vs. SPHB.) I missed some good opportunities but it's easier to make up opportunities than recover from drawdowns.
Ultimately, we are seeing signs of economic weakness, which should make earnings growth harder to come by. We've had quite a run in retail favorites, and I'm unwilling to chase that. Again, I'm somewhat fascinated with how poorly so many retail favorites did in today's rally, such as NBIS, RDDT, and OKLO. I'd rather own cheap quality, right now. I’d also note in passing that the volatility complex isn’t ringing much of an all-clear.
Realistically, the brunt of what we saw today was likely bears who were expecting downside from the Iran conflict covering positions, including closing long oil trades. The question is what happens next. I still think downside is quite possible in the next month or two, but I'm not sure when that happens. The idea of floating back up to recent highs seems more reasonable, now.
There are still problems out there. The economy is good but slowing, and this week's economic data may show that, though there's nothing obvious out there, except maybe PCE inflation on Friday looking stubbornly strong. The tariff deadline is in roughly two weeks, and there's been signs of stress. Middle East war has been going for a while and may not quite be done.
However, the market has been getting healthier. After pausing on tariff worries, credit markets are back to functioning. Liquidity remains pretty good. While I was happy to try fairly aggressive hedging near recent highs, I don't think we have the conditions to be particularly stubborn about it. Now that the market has something to hold on to, I don't think it makes sense to fight. Thus, I'm a little long and will probably work to get a bit more long this week. We're not facing a great opportunity here, but I need a solid reason to fight a trend, and I don't think I have that, here. I'll see what develops from here.