Market Briefing For Tuesday, April 16

Economic factors excessively play into the calculus being assessed right now, both in Tel Aviv and in Washington, and mostly it involves money and oil.




On an immediate basis you have a big slate of earnings coming (some bank stocks in the morning), but all this is overshadowed by the Middle East crisis. Even the initial morning shrugging-off was not expected to be sustainable, as well as a finish that has all the major Indexes beneath their 50-Day Moving Averages, but again assisted by an absence-of-bids ahead of overnight.

Nuances are being debated in every way, including pressure on China to stop buying Oil from Iran, which is how the mullahs have the money to build drone and other weapons they use to attack Israel, or others too. Follow-the-money thus has a role here, but also plays-into what Iran probably 'won't do'... that's block the 'straits of Hormuz' from tanker traffic, because that cuts-off shipment traffic to China.

So, it crosses my mind (not suggesting that will be Israel's cabinet decision) an interesting way to retaliate against the 'theocratic mullahs' and not harm many Iranian civilians, would be to attack the navy base and oil loading facilities of Iran on the Persian Gulf. They either take that, or possibly lash-out at Bahrain or other limited U.S. facilities in the region. However, it's a target which spares the civilian population but extracts an economic toll. Just a thought.



(A main point above is that Tehran lies saying they targeted only military targets...that is all they hit, but definitely targeted more. We all saw intercepts directly over Jerusalem near the Knesset & Dome of the Rock, al Aqsa Mosque, and more).


Market X-ray: 

S&P futures Monday evening are firmer (about 15 handles), while oil meanders near unchanged. That reflects the 'ambiguity' everyone feels about what's next. Yes it's arguable Iran did not have Hezbollah unleash it's rockets thus only conveying a message, however I don't believe that strongly given there were tons of ordnance on the drones and missiles that were aimed at cities. Of course, the Islamist militants didn't know virtually all would be intercepted, so the Iranian UN 'pitch' that they only aimed at military targets is entirely nonsense, I think because they don't want their domestic audience to see how poorly there were performing (thankfully). As I posted earlier, I do not think Israel will just 'take it as a win' and halt, but hopefully give it some time to gather support (including some in the Sunni Arab world).

Sure, Tehran says they're done for now, well, they're likely unable to replicate their toxic ensemble in the near future, so some of their talk is bravado. I'm impressed that Israel's 'war cabinet' did not retaliate 'during' the hours-long drone flight time and always knew they have at least one missile submarine 'on-station' in the Indian Ocean area nearer Iran, if push came to that kind of shove. It is never mentioned, but maybe that also is in the minds of the mullahs. Still the Persian people are history's long saga and deserve better than these zealots that hijacked their nation. Anyway, the attacks are very significant, blessing no fatalities, even though Iran clearly targeted the Knesset 'and' even the al Aqsa Mosque if you did watch the videos and intended target estimates. I still believe what Hamas did by attacking Israel on behalf of Iran was primarily to forestall an alliance for 'regional security'.



The old saying: 'the enemy of my enemy is my friend' comes to mind when it relates to the Saudis, and they too helped repel their mutual adversary Iran (radar and overflights), while Jordan was active along with unnamed Gulf states. (The actual ballistic missiles were mostly shot down by US Navy destroyers in the Med.) Certainly, the world remains on tenterhooks, the Israelis wisely did not shoot from the hip and if nothing else proves how much more accurate the AI drones* that Ukraine uses against Russian Oil refineries are (to the disdain of Moscow and DC by the way).

Was BBAI 'battlespace management' involved yesterday? Given the splendid coordination between Allies I like to imagine so but have no idea. (* Iranian drones used and sold to Russia for their attacks on Ukraine are based on an older US knockoff, I wrote about this years ago, when one was shot down near the Afghanistan border and we didn't send a jet in to blow it up, so the Iranians got it. Long before Ai guidance systems happily... however Iran's massed attack concentration was intended to make up for that and fortunately they were mostly shot down by jet fighters not surface-to-air interceptors.) No doubt Iran intended fatalities.



All the parties saying they don't want a wider war. Well, Austria-Hungary, France and Britain all said that after Archduke Ferdinand was assassinated, and a World War ensued 'anyway'. I've said for months that between Ukraine, Gaza, the simmering South China Sea (and the quasi-revolutions in Latin America that nobody wants to talk about) we are in the latter stage equivalent of the 1930's and of course the trick (not easy) is to put the genie back in the bottle (so this Genie will limit comments pending new developments which I'll opine on).



Market X-ray: 

The S&P has been crying for a 5% or more drop for at least two months, hence advice (take it or leave it) not to chase mega-caps, even ring the register on some of our own last month (or at least write covered Calls or something) as a bit of a hedge. That was of course before tensions ramped up again in the Middle East and was base more on an extended big-cap scenario than even Fed policy moves.

Stocks like Tesla (TSLA) and Salesforce (CRM) are getting creamed, and they exemplify the mega-caps getting hit, while even our own few (like Apple, AMD and so on) are being hit. This is overdue and expected, and probably not over.

It's of course sensitive to overnight developments (escalating tensions) and stronger economic data (Retail sales) which are sort of contrary influences but regardless, it takes us back to OIL as the simplest way to monitor 'what's next' or at least feared next. We'll see if a war 'cycle of escalation' fully develops.

It's a time of rolling volatility, even before earnings or rate worries, and rickety mixed performance by stocks (a majority of small stocks are flat plastered for awhile even if it feels like only ones, you or I might follow are getting hit). So again, you could have an S&P consolidation even to 5000 or below (depends on military event risk and actuality of course), but earnings alone, even if good, aren't enough.

A lot of things are happening all-at-once, discretion remains the better part of valor and although unhappy (of course) with equity behavior aside S&P itself, this adjustment in the Senior Index was due especially as many firms decided to increase upside targets instead of selling portions as I thought appropriate.

For now, we expect volatile swings related to war and you should keep the helmets on. The 'conflict outcome' is by no means settled. Especially whether Israel's able to take-on Iran's well-defended nuclear facilities or 'drone' factories.

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This is an excerpt from Gene Inger's Daily Briefing, which typically includes one or two videos as well as more charts and analyses. You can follow Gene on Twitter  more

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