The Middle East crisis seems to be escalating into a regional war with US involvement, existential stakes, and global effects. The S&P 500 fell to its 200-day moving average on Friday in response to the geopolitical risks. We expect it to breach that level this week even if the bond yield declines. The escalation of hostilities we expect prompts us to raise our odds of a US recession before year-end 2024 again, now to 35% from 30%. A year-end rally is less likely now, but geopolitical crises do tend to present long-term buying opportunities in stocks.
Also: We update the bond market’s supply/demand situation and discuss the consumer-spending-employment spiral.