(1) Geopolitics. President Donald Trump said he is weighing a “massive attack” on Iran. The Pentagon is flooding the Middle East with elite troops, fighter jets, and combat medics. “I am considering a massive attack. Bigger than anything we have ever had before. I am close to making a decision. We are fully prepared for it,” the president told Israel’s Channel 12 on Thursday. The US military on Tuesday deployed a powerful B-1 long-range bomber, officials told Axios. It was the first time the US conducted a B-1 mission since fighting with Iran resumed 12 days ago, signaling a major escalation in the war. The moves come as Trump is demanding “a head for an eye” when it comes to attacking Iran, Secretary of State Marco Rubio told reporters Thursday, updating the Old Testament formula of reciprocal justice.
Today's WSJ reported: "The president in recent days has grown skeptical that negotiations with Iran can produce a lasting peace, according to people familiar with the matter. A senior administration official said Trump believes that the only thing Iran understands is military force, adding that he was in 'revenge mode' against Tehran. The president, the official said, sees few good options besides continuing strikes."
The price of a barrel of Brent crude oil soared today (charts). It was boosted by news that the Houthis targeted two Saudi oil tankers with ballistic missiles, cruise missiles, and drones in the Red Sea on Wednesday. Trump's "Apocalypse Now!" warning today sent the price back above $100.
The S&P 500 fell only 1.2% to 7,408.30 as the war escalated today (chart). It has been fluctuating around 7,500 since May 14. It is now slightly below its 50-day moving average.
The relative calm in the S&P 500 suggests that investors have learned that geopolitical crises have usually been good buying opportunities (chart). It should be so again. This time, dip buyers are likely to bet that either Iran caves or Trump does.
(2) Sentiment. Our favorite bull-bear ratios are mixed (chart). They are consistent with our summer stall scenario and the sideways trend of the S&P 500 since mid-May.
