We started writing our Market Call on Friday. Saturday morning, we woke up to the news of the joint military campaign by the US and Israel against Iran's evil Mullah regime. It appears that the two allies have complete air superiority. In a video statement posted to social media, US President Donald Trump vowed to destroy Iran's missile program and navy, and ensure that the country can "never" have a nuclear weapon. Iran's defenses were already badly degraded by last year's attacks by Israel and the US.
So we doubt that the Iranian regime will be able to block the Strait of Hormuz, as it has threatened to do in response to being attacked. If that’s the case, then increased production by the rest of OPEC is likely to limit any rise in oil prices due to a decline in Iran’s oil exports during the current conflict. Furthermore, the oil market might start to anticipate that if the Mullahs are toppled, then Iran will export even more oil.
We wouldn’t be surprised if any rally in the S&P 500 Energy sector on Monday morning fades by the afternoon. We wouldn’t be surprised if any selloff in the S&P 500 on Monday morning turns into a rally, driven by expectations of lower oil prices once the latest Middle East war ends. The price of gold might also round-trip on Monday. Bond yields might fall due to both safe-haven demand and post-war prospects for lower oil prices.
Now back to our regularly scheduled programming:
(1) Performance. RSP (the S&P 500 equal-weight ETF) rose to a new record high on Friday, while SPY (the S&P 500 market-weight ETF) fell 0.4% (chart). The former is up 7.0% ytd, while the latter is up just 0.6%. In early December of last year, we recommended rebalancing out of the Magnificent-7 and into the Impressive-493. So far, so good, as the former has outperformed the latter. We expected that the stock market might be choppy during the first half of the year. That's half true, as RSP has risen to record highs, while SPY has churned below 700, just as the S&P 500 market-weight stock price index has been choppy below 7000.
