This evening, the prices of a barrel of Brent and WTI crude oil are up about $15 to $107. The price of gold is falling because the dollar's foreign exchange value is rising. The 10-year bond yield is up to 4.195%. The S&P 500 and Nasdaq futures are down by more than 1.7%. The Nikkei is down 4.5%.
This chaos in the financial markets is all about the Strait of Hormuz, where a tanker was reportedly hit by an Iranian suicide drone on Saturday morning. This oil shock won't end until ships can sail freely through the Strait. Until then, the financial markets are likely to become increasingly concerned about a 1970s-style stagflation scenario; back then, the period of stagflation included two recessions.
According to Polymarket.com, the odds of a recession this year jumped to a three-month high of 34% on Friday from 21% on Wednesday, February 25, just before the war started. We started to see trouble ahead last week on Tuesday, when we predicted a 10%-15% correction in the S&P 500 because of the war. Now we can't rule out a bear market and even a recession. It all depends on how long the Strait will be closed, obviously.
