The fog of war has been replaced by the fog of the ceasefire between the US and Iran. Negotiators for the two countries will meet in Islamabad on Friday. They met many times before without averting the war. The pounding of Iran by the US and Israel has failed to topple Iran's regime, which still seems to have firm command and control of the country despite the decapitation of its leadership during the first day of the war. The Islamic Revolutionary Guard Corps remains intact, capable of firing missiles and drones, and has effectively taken over the Strait of Hormuz. The American negotiators will still insist that Iran abandon its nuclear program and surrender its stash of enriched uranium. But now they also need to get the Iranian regime to reopen the Strait as a free passageway for navigation in accordance with international law.
Given all the above, today's latest relief rally in the stock market might have reflected more short covering than outright buying. Still, it was impressive to see the S&P 500 rebound back above both its 200-dma and 50-dma (chart). Moreover, during the 9.1% pullback since January 27, the 50-dma has remained above the 200-dma. We still think that the S&P 500 bottomed on Monday, March 30, at 6343.72. It is up 6.9% since then and down only 2.8% from its record high on January 27.
At the start of this year, we expected the stock market to be choppy in the first half, though we didn't anticipate the war. It is likely to remain choppy until ships can sail freely through the Strait.
