Latest / Markets with Megan: A Quick Financial Markets Update / Ceasefire Rally - Reality Check? | S3 E136 | 04-08-26

Transcript

Ceasefire Rally - Reality Check? | S3 E136 | 04-08-26 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: We've got a massive relief rally on our hands today.
• 0:03
  Megan Horneman: It's Wednesday, April the 8th, and this is Markets with Megan.
• 0:06
  Megan Horneman: If you like this podcast, you can subscribe, hit the alarm bell, share it with your friends, family, or colleagues.
• 0:12
  Megan Horneman: But we're here today to talk about what we're seeing in the equity markets, specifically because of the temporary ceasefire that was announced.
• 0:21
  Megan Horneman: There were details announced last night and then solidified here this morning that we do have a two-week ceasefire between the US and Iran.
• 0:30
  Megan Horneman: Now, there are a lot of things driving the market today.
• 0:34
  Megan Horneman: Obviously, the ceasefire is the biggest thing, but we're seeing crude oil plummet now 15%.
• 0:40
  Megan Horneman: It's the biggest single-day move lower since COVID.
• 0:44
  Megan Horneman: That's helping optimism from an economic standpoint.
• 0:48
  Megan Horneman: Also, we're seeing yields sharply lower because oil prices are lower.
• 0:52
  Megan Horneman: And because of all those things, you're seeing inflation expectations come down.
• 0:57
  Megan Horneman: The inflation expectations for the next one year dropped from about a 5.38% all the way down to 4.95%, specifically because of this big drop we've seen in crude oil prices.
• 1:09
  Megan Horneman: Also, there's one other thing to highlight that according to a Goldman Sachs article, that we're seeing hedge funds today because of this relief rally, they're doing um covering bearish bets that the fastest pace that we've seen since 2020 in that COVID aftermath.
• 1:27
  Megan Horneman: So again, a lot of things moving the markets today, but let's dig in a little bit to that main driver, and that is that relief around a ceasefire, or the fact that there wouldn't be a more heightened tensions at eight o'clock last night as the president was threatening.
• 1:40
  Megan Horneman: Now, we have the details out of both things that the that US wants and Iran wants.
• 1:46
  Megan Horneman: We are cautiously optimistic about this.
• 1:49
  Megan Horneman: We are not as optimistic though as this rally today is showing.
• 1:53
  Megan Horneman: I think some of this rally, as we mentioned, has to do with some technicals in the market being triggered, triggered, which then sends you know algorithmic trading, and we see a much bigger impact in the market.
• 2:06
  Megan Horneman: When we dig into the details of what each country wants, we're still far apart in this ceasefire deal.
• 2:12
  Megan Horneman: There's several things that both countries have dug their heels in about, um, and I don't foresee them changing.
• 2:18
  Megan Horneman: So there's a lot of work to be done.
• 2:20
  Megan Horneman: Uh these countries are the negotiators are supposed to meet in Pakistan um this Friday, April the 10th.
• 2:26
  Megan Horneman: We're already seeing some breakdowns of this and a lot of confusion around what the ceasefire really is supposed to mean, um, what it's supposed to be involved and what's not involved.
• 2:38
  Megan Horneman: And the biggest thing is the fact that Israel is a part of this war, and Israel is continuing to hit targets in Lebanon because of specifically terrorist regimes.
• 2:49
  Megan Horneman: And and Iran had said that the ceasefire deal meant all ceasefire and all fighting in Lebanon including.
• 2:56
  Megan Horneman: So we have a lot of miscommunication there or a lack of fact on what really is truly in that ceasefire deal.
• 3:04
  Megan Horneman: And we are getting reports that even though the Strait of Hormuz was a was a must have that must be open for any of the ceasefire to take place, we are getting reports that because of the continued fight with um that Israel is is putting on Lebanon, that the Strait of Hormuz is closed again.
• 3:22
  Megan Horneman: Uh, we we have again, these are reports that we're getting today.
• 3:26
  Megan Horneman: This situation is highly fluid and changes not only by the day, but really by the minute.
• 3:30
  Megan Horneman: Um, we're one tweet away from basically this market completely going the other way.
• 3:35
  Megan Horneman: So we continue to look at portfolios from valuations, fundamentals, and technicals.
• 3:40
  Megan Horneman: Right now, technicals in this market are not showing anything that's um overly compelling.
• 3:45
  Megan Horneman: We wouldn't sell on this strength, but we also wouldn't buy into this strength because valuations still aren't cheap.
• 3:52
  Megan Horneman: And in fact, even in the recent volatility that we've gotten, never really got cheap enough to put a significant amount of work into the market.
• 4:00
  Megan Horneman: From a fundamental perspective, we think that the that what we're seeing with the drop in crude oil, with the drop in inflation expectations, all of this is way too optimistic of what may transpire over the coming months.
• 4:13
  Megan Horneman: Instead, here our our base case scenario for what will happen is that we're gonna have ongoing extensions because two weeks is a very short period of time to work through where there still are quite a bit of differences.
• 4:24
  Megan Horneman: Um we think it's you know it's being caught a fragile ceasefire, and we would agree with that, but we do think some of these ongoing violations are going to take place.
• 4:32
  Megan Horneman: It's not just Israel and Lebanon, but there were reports of Saudi Arabia, the UAE, Kuwait, and Bahrain being hit today by Iranian targets.
• 4:40
  Megan Horneman: So this isn't completely over from that perspective.
• 4:44
  Megan Horneman: And remember, it's not just the US that has to abide by this.
• 4:48
  Megan Horneman: Israel is involved in this war as well as so many other now Middle Eastern countries.
• 4:53
  Megan Horneman: We do think because of that, that we'll get these rolling shutdowns of the strait.
• 4:58
  Megan Horneman: So, what does that mean?
• 4:59
  Megan Horneman: For equities, expect volatility.
• 5:01
  Megan Horneman: You're expect some of these big up days as we get relief from some positive news, but also expect some pullback on this as we kick this can down the road.
• 5:11
  Megan Horneman: We still think that there's potential for earnings downgrades.
• 5:14
  Megan Horneman: While energy earnings can be revised higher, remember that energy makes up a very small portion of total earnings for the equity market here in the U.S.
• 5:23
  Megan Horneman: And some of those things that are being impacted, supply chain disruptions in the Strait of Hormuz, are major inputs into some of those areas of the market that we're supposed to lead earnings this year.
• 5:36
  Megan Horneman: Like if think about semiconductor chips.
• 5:38
  Megan Horneman: Um these there's components there that are kind of locked up here with the Strait of Hormouths being shut down.
• 5:44
  Megan Horneman: Bonds, we think that unfortunately, higher yields most likely for the rest of this year.
• 5:49
  Megan Horneman: We don't think the Fed's going to be able to make any moves.
• 5:52
  Megan Horneman: We think that inflation will still be an issue because this takes time to work through.
• 5:57
  Megan Horneman: We've had an oil price shock.
• 5:59
  Megan Horneman: It's not going to come back online.
• 6:01
  Megan Horneman: The supply chain isn't coming back online immediately.
• 6:04
  Megan Horneman: There will be filter through effects that will be felt here in the near term.
• 6:08
  Megan Horneman: From an oil perspective, we've probably peaked what we saw here recently over$110 a barrel.
• 6:14
  Megan Horneman: And we do think that we, you know, coming lower below$100 is likely to remain, but it's going to stay elevated as we continue through these deals, which we said is likely to continue to get extended.
• 6:26
  Megan Horneman: Gold, there's been a big disconnect between oil and gold.
• 6:30
  Megan Horneman: When oil prices have been going up, gold prices have been going down.
• 6:34
  Megan Horneman: So while we are getting a rally here in gold today, be careful because that relationship is still there.
• 6:39
  Megan Horneman: If oil prices reverse and go higher again, we could have some near-term weakness in gold.
• 6:44
  Megan Horneman: The dollar is probably peaked in its recent in its recent peak that we saw here, but because you're looking at higher yields and the Fed on hold, you may see the dollar supported here in the near term.
• 6:56
  Megan Horneman: So, in summary, um, we are cautiously optimistic, but we aren't as optimistic about this deal as the equity market is showing you today on the tape.
• 7:05
  Megan Horneman: We'll take the rally, it's welcome news, but we're not jumping in on this.
• 7:10
  Megan Horneman: Instead, we're gonna wait for the valuations to adjust to with our baseline scenario around inflation, around the Fed, around um crude oil prices.
• 7:21
  Megan Horneman: We'll wait for that to look more attractive and also technicals that's that that are that look um stretched here as we've seen this big pretty big rally.
• 7:29
  Megan Horneman: Now that's all we have today.
• 7:30
  Megan Horneman: We'll get inflation data tomorrow, which will be important.
• 7:33
  Megan Horneman: We'll come back to you with that.
• 7:35
  Megan Horneman: And as we mentioned, the situation is so fluid that we'll come back again as we get more information.
• 7:40
  Megan Horneman: If you want a history of our podcast, you can go to marketswithmegan.fm.
• 7:44
  Megan Horneman: Thank you.