Market's Aren't Perfect

I’m spending a few days with father and son time on a cruise ship, I will see everybody at the MoneyShow in Hollywood Florida. I’ll let the investment team take this one today!

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Colin Symons, CIO Lloyd Financial Group

Markets are always trying to look forward. Thus, markets started to surge up before tariff relief even came, last year, as investors saw positive signs. Similarly, investors are trying to do this here, with the Iran war.

Admittedly, markets aren’t perfect. At first, investors seemed to think this would be a short and simple conflict and started bidding markets early in the month. As the war drug on, the market priced in more negativity. Last week, once again, markets started to price in the idea that the worst was over, going up despite bombs still flying.

Now, I don’t know if that’s correct, and neither does the market, really. We’re both just trying to do our best with the information available. We know how the market has acted with the information and we get to choose what we want to do with that. So, what do we see?

I think the primary thing to note is how we’re starting to see more dispersion, rather than everything moving as one big trade, which implies the big, immediate stress is declining. The short-term interest rate (STIR) market has really calmed down, after moving strongly to hikes. Oil volatility (OVX) is well off highs but remains elevated. Similarly, while volatility (VIX) has been in an uptrend, it never beat early highs. Lastly, the dollar (DXY) remains elevated since the start of the conflict but has broadly been moving sideways for the last three weeks.

That’s all reasonably encouraging, and probably some of why the market has surprised people by being so constructive, late last week. The one pressure point that remains is the oil market. Near-term prices are moving up as disruptions continue, and that’s definitely a stress point. The basic question is to what extent is the oil curve below correct? Is that market right that by the end of the year, oil prices won’t be so much of a deal?

Most of the time, I assume I’m not smarter than the market, and that’s what I’d say, now. I recognize we have issues, and domestic producers are starting to signal these potentially are of longer duration. There seems to be a lot of near-term fear of price spikes, plus some concern of the oil price floor moving higher than it was a few months ago.

However, markets have already declined as they anticipated problems. Will that continue? Some seem to want to guarantee further declines, but I’m not so sure. Imagine the market starts to believe things are getting better and we should be wrapping up this war in a few weeks. Maybe that sounds crazy to some, but arguably, that’s what we saw on Thursday, where for the first time in quite a while we failed to fall into the weekend as investors de-risked.

This remains a headline-driven market, and the reaction to those headlines is also important. I’d repeat that war tends to be a buyable event. Yes, infrastructure damage hurts, and this will create some amount of inflation in the market. However, at some point, there’s a good chance the war gets better, and that may be soon. We already see an increase in traffic in the Strait of Hormuz, albeit way off highs. I’d remain flexible, rather than focusing on problems that stand a good chance of fading.

The Payrolls report was strong, at 178K vs. 60K, giving back some of last month’s losses of -133K. The last two months were revised lower, somewhat mitigating the strength of the report. The Unemployment Rate was 4.3% vs. exp. 4.4%.

Services PMI was 49.8 vs. exp. 51.1. That gets the Composite PMI to 50.3 vs. exp. 51.4, the weakest since 2023. With Services in modest contraction, maybe the economy isn’t quite so hot?

Jobless claims were fine, at 202K vs. exp. 212K, while Continuing Claims increased a bit, at 1.84MM vs. prev. 1.82MM. Again, it mostly seems like a slow motion slowdown.

Balance of trade was good at -$57.3B vs. exp. -$59.2B, with exports looking solid.

Trump’s Monday morning deadline for Iran was moved back to Tuesday, 8PM, EST. Sweet relief.

Further, the US, Iran, and regional negotiators are working on a deal for a 45-day ceasefire that could pave the way for an end to war, starting as soon as today. This bid stocks and knocked down oil, though Treasuries are down a bit. As usual, with this stuff, there are contradicting headlines., some of which are deliberately misleading, with things like partial quotes.

Trump requested $1.5T for 2027 defense spending, vs. the $1T for 2026.

ISM Services, today.

What does it all mean? More brinksmanship?

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