Market Story Lines

Hello, I'm Michael Reinking, Senior Market Strategist at the NYSE, and this is Market Storylines. Every week we are here to keep you to date on the key trends and events driving global markets. We are recording on Thursday afternoon in another week where markets are squarely focused on headlines related to Iran. So let’s dive in.

For the last couple of week Eric and I have been talking about the escalation of the conflict, how the closure of the Strait is impacting energy and supply chains and how this is ultimately being interpreted within financial markets. Eric last spoke with you on the final day of the Astronomical Winter. Friday was the first day of spring and it turned out to be a historic trading day here on the New York Stock Exchange as well. It was triple witch expiration - the simultaneous expiration of equity options, futures options and stock index options and the quarterly index rebalances, which is consistently one of the heaviest volumes days of the year. This was one for the record books with >5B shares and >300B of notional value trading on the NYSE, eclipsing the previous records of around 4.7B shares and $250B, during the same liquidity event in Q1 of last year. Speaking of spring and records, spring doesn’t start in my book until opening day and now we’re officially underway. The Yankees quest for a perfect season is still in tact after a pitching gem from max fried and 7-0 victory over the San Francisco Giants last night.

A week ago, Eric highlighted that the S&P 500 had broken below its 200d ma for the first time since reclaiming it last May in the wake of the tariff turmoil and the downside momentum picked up heading into the weekend. The S&P 500 ended lower for the 4th consecutive week and 9 of the last twelve falling nearly 2%. The headline whiplash continued over the weekend with President Trump saying on Friday evening the US was “getting very close to meeting our objectives” but less than 24 hours later he followed that up by threatening to “obliterate” energy infrastructure in Iran if the Strait wasn’t “fully open, without Threat, within 48 hours”. That deadline fell on Monday evening and not surprisingly it was an ugly overnight session in global markets ahead of Monday’s US open.

However, the complexion of the morning changed very quickly shortly after 7:00 when President Trump posted that there had been “VERY GOOD AND PRODUCTIVE CONVERSATIONS REGARDING A COMPLETE AND TOTAL RESOLUTION OF OUR HOSTILITIES IN THE MIDDLE EAST” and postponed that deadline until the end of the week which triggered a 250pt reversal in S&P futures, sharp declines in oil markets and a little sense of déjà vu as Monday morning was also the 6 year anniversary of the Covid low.

Let’s take a quick trip down memory lane shall we - On March 23 2020, the S&P 500 was down ~35% from its all-time high, the fastest 20% decline in history occurring in just over 20 trading days. That Monday was the first day the NYSE trading floor was closed and ahead of the open with futures trading sharply lower the Federal pulled out its own form of a bazooka announcing an unlimited amount of QE including the purchases of agency/mortgage-backed securities and putting in place credit facilities to backstop the corporate credit markets. That did help to stop the bleeding, but equities still ended the day lower, but this did help catalyze a 20% surge in the index over the next 10 trading sessions - and the rest is history as they say.

I take detour not only to celebrate history but also to help keep this most recent bout of volatility in perspective. At the lows on Monday morning S&P futures were about 8% off the all-time high hit at the end of January. The aforementioned headlines caused a sharp reversal, but the optimism was tempered by a quick response in the Iranian press and from officials that no negotiations had taken place. By the end of the day the S&P 500 had recouped most of Friday’s selloff but failed to reclaim its 200d moving average while oil prices fell ~10% trading in a nearly $20 intraday range.

Outside of the headlines, the optimism was also tempered throughout this week by the fact that Iran and Israel continue to exchange missile fire while the US continues to move military assets into the region. Equities held the bulk of the gains throughout the week despite the back and forth he said she said headlines until today’s session as we inch closer to the new deadline and there aren’t signs that the two sides are getting meaningfully closer. The US has reportedly delivered a 15-pt plan which would include a 30-day ceasefire via Pakistan which has been rejected while Axios is reporting that the Pentagon is preparing for a “massive final blow”. This morning President Trump warned Iran to get serious before its too late but said he hadn’t made a decision as to whether the upcoming deadline would change. He did say that Iran’s gift that he cryptically discussed the other day- was allowing 10 Pakistani-flagged oil tankers to sail through the Strait. Describing it as a show of faith and confirmation that the group they were engaging were in charge.

The S&P 500 is down >1% today but around unchanged for the week however, the equal weight version of the index is still holding on to gains while small and midcap indices are still up >2%. The overall declines remain pretty contained as markets continue to hope for a TACO trade as there could be a significant rally should there be an offramp but the range of outcomes is quite wide and gets worse the longer this carries on.

Within equity markets we’ve started to see some rotation again with mega-cap tech and software coming under pressure yet again which are both down over 3% for the week. Alphabet and Meta have also been under pressure after a Jurors in Los Angeles ordered the companies to pay damages in the landmark social media addiction trial. AI anxiety is back after Anthropic had a new release that allows users to enable Claude to use their computers to complete tasks from their phone. That is also keeping private credit in the headlines as the redemption feeback loop continues. Energy and materials stocks continue to outperform both up ~4% for the week with chemical and packaging companies trading well amidst a steady stream of price increase announcements.

After Monday’s pullback oil prices have started to move higher again with ICE Brent up >5% today, re-approaching $110 which along with this week’s flash pmis is sparking inflation concerns again. Treasury yields are on the move higher again with the 2yr now ~60bps off the low hit in late February currently just under 4% while 10yr yields approach 4.5% and 30yr yields approach 5%.

Unfortunately, we remain in the headline driven volatility with the looming deadline quickly approaching. Next week the economic data includes the ISM surveys, retail sales and the jobs report on Friday though US markets will be closed. Tuesday is the final day of the quarter so keep an eye out for some quarter end rebalancing over the next week. Enjoy the baseball, the sweet 16 and spring break for those of you taking some time.

That’s going to do it for this week thanks for spending some time with us. If you liked today’s episode, please tell a friend or leave a comment wherever you listen to your podcasts. I’m Michael Reinking and we’ll talk to you again next week.

Coming out of the weekend traders instituted the typical conflict playbook with equities broadly under pressure with travel related stocks bearing the brunt of that selling while defense contractors and energy stocks moved higher. On Sunday evening oil prices were up >10% but gave up about half of the gains on Monday. Precious metals also initially moved higher but gold only ended modestly higher well off the best levels while other metals turned lower. The USD dollar had a strong bid. However, after rallying for the last month Treasuries did not catch the safe haven bid as inflation concerns sent yields higher.

S&P 500 holding the February lows around 6,780 with the S&P 500 ending the day around unchanged.

The tone shifted on Monday evening, as Iran fired on ships in the Strait of Hormuz and attacked energy and infrastructure targets across the Middle East and a cautious tone from the administration preparing the public for an operation that could carry on for weeks. The caused some broader weakness initially on Tuesday with energy prices and yields moving sharply higher overnight but as there were reports that the administration would provide military support for tankers in the Strait and help to financially backstop insurance energy and yields backed off and there was another big intraday bounce in equities with the S&P 500 bouncing ~2.5% off the lows to once again end around after testing the December lows and the bottom end of the ~250pt range we’ve been highlighting for months now.

Markets bounced Wednesday largely driven by a NYT times report that suggested Iran had reached out through backchannels to negotiate an end to the war but that has since been refuted and equities are under pressure again today.