1. Middle East Flashpoint: War on Iran Escalates
This is escalating. The U.K. and France are apparently talking about joining to “protect.”
U.S. bases in Gulf countries are constantly under attack, with a decent amount of damage reported across the board. A Saudi oil facility was impacted as well.
In addition to this, the crisis in the Strait of Hormuz continues. We know that it isn’t fully closed, but traffic has come down significantly, and apparently insurance policies are getting canceled for the route.
The Strait of Hormuz is a global energy choke point, and the longer the strait remains uncertain, the bigger the impact on oil prices — and, obviously, what we pay at the pump.
As this all happens, watch Trump’s ratings. They have been trending down, and war is not on Americans’ bucket list whatsoever. He keeps losing on the economy and inflation. This regime change war, now all of a sudden not a regime change war, is going to take a toll on Trump’s ratings and what happens to Republicans in the mid-terms.
2. Cracks in the Private Credit Market
This story is still not getting attention but is worth watching very closely.
There are issues in the private credit market. Since it’s so opaque, it takes time for news to come out and for us to see who’s swimming naked.
Blue Owl unleashed something, and there are fears that we could see more problems. Comments from Jamie Dimon were interesting too — parallels to the GFC.
Looking at all this, you might say, “I don’t have any exposure to private credit… why should I worry?” Well, look at what happened on Friday. A mortgage finance company in England became insolvent, and all of a sudden we found that a bunch of banks had exposure to it. Bank stocks across the board got hurt.
Mind you: BDCs are already under fire — where you’d get exposure to private credit as an individual investor.
On top of all this, look at the spreads between investment grade and high yield, plus the yield curve. All of it is making things very interesting.
3. Inflation Pressures, Job Fears & Potential Relief
As oil prices spike, and if things get worse or oil prices remain elevated for an extended period of time, then, as said earlier, we are going to be paying a lot more at the pump.
But that’s just one part of the story: we could see costs across the board get impacted.
This will open the door to more inflation noise. So, be mindful.
Beyond this, keep an eye on the headlines around jobs. We are seeing a significant number of stories about how a bunch of job losses could be ahead because of AI. We have recently seen some cuts already, and more could very well follow.
Lastly, in light of all the global uncertainty, with the average person potentially getting squeezed at the pump and losing their job, do not be shocked if we hear about some sort of “relief” from major governments. This has the potential to be extremely inflationary in the near term.
4. Gold, Silver & the Rising Dollar
Gold and silver initially caught a bid at the open last night but have been giving up some gains since the morning. Let’s see.
Keep in mind: in the case of broad market selling, gold and silver will come under fire near term as well.
Another factor at play could be a rising USD. The dollar index has broken above a range that was in play for a few days. The dollar could be acting like a safe haven asset again.
If the dollar index rises a bit more, it would not be shocking to see precious metals step back a little.
5. Stock Market at a Crossroads
Art Cashin has a very famous saying: “Buy when missiles start flying.” Could that be true for the stock market today? Possible. In the near term, dip buyers might jump in.
But keep the big picture in mind: the S&P 500 remains below its 50-day moving average. This tells us the near-term trend is pointing downward.
Plus, with a new war likely escalating and Trump’s ratings getting impacted — historically speaking, this is not good for the stock market. But we are in “uncharted territory,” so maybe history doesn’t matter?
As yields drop on U.S. bonds, I can also see some sort of rotation from stocks to bonds as well.