Markets got a JOLT
Markets got a JOLT
A Job Opening and Labor Turnover Survey, among other JOLTS
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Well, if you were complaining about a boring week last week, you’re not complaining today!
We got some unattractive economic data this morning, followed by some WW3 fears sparked by Iran retaliating against Israel.
Iran’s response was similar in scope to their April “attack,” and Israel was able to successfully shoot down the incoming strikes, with only a few making contact and apparently only 1 person being killed, though the number is in flux.
Current reports are that they fired 180 today. For comparative purposes, in April, they fired 120 ballistic missiles.
I wrote in Groundhog Day that I did not expect a major escalation. Well, I’m going to give that prediction a “mostly false” rating.
I don’t view today’s attack as a significant escalation, but Iran responded more significantly and more rapidly than I expected.
Sunstantively, today’s attack was not a tangible hit to Israel, but I think there is some risk of Netanyahu and the hawks in his cabinet using it as an excuse to escalate. There has already been rhetoric floating around from Israel, saying things like “Iran will pay” and “Iran has made a mistake.”
It’s unclear how much signal that rhetoric holds.
Analyzing Escalation
The Israel/Iran situation is sensitive, and I will try to analyze it without diving into the right and wrong of things.
It’s clear to me that Iran does not want war, as they have repeatedly chosen to ignore provocations or have reacted with impotent strikes (April 13th, maybe today).
Israel, on the other hand, has been getting progressively more brazen in their attacks on Hamas and Hezbollah officials, including pulling off strikes on Iranian soil.
You may argue about the right and wrong of these strikes, but since the original October 8th attacks it is Israel who has been driving the level of escalation.
The ball is again in Israel’s court. After April 13th, they responded on April 19th with fairly tame strikes on Iran. If they do something similar this time, the markets will likely be able to put this one to bed.
If they choose to escalate however, we might be in for a period of anxiety or worse in markets.
Looking for Historical Analogues
There has been talk of Israeli incursions into Lebanon, with some sources reporting they have been happening for the last few days. In order to get an idea of what we might be in for here if Israeli troops begin to march beyond Israel’s borders, I decided to take a look back at two times Israel put troops on the ground in Gaza.
In both periods, stocks experienced a few weeks of chop and downward momentum. However, once the tension had ended, stocks made a reasonably sharp recovery.
Therefore, I see a few possible outcomes from here:
Israel retaliates in a proportional manner similar to their April response. The tensions from this incident were resolved within a week. We go back to worrying about the economy (more on that in a minute).
Israel retaliates in a way that continues to drag out the conflict. This may mean heavier-than-expected strikes on Iran, putting boots on the ground in Beirut or Gaza, or something similar. In this case, we are likely in for additional moves to the downside, with risk assets periodically struggling while the tensions continue for the rest of Q4.
Israel retaliates in a way that genuinely escalates the conflict. With this, we may well be in uncharted territory.
My chalk outcome remains option 1. But we moved meaningfully closer to escalation today.
Stay cautious.
The Most Important Week in Macro(economics)
The S&P Global Manufacturing survey came in today slightly higher than expected but still very low.
ISM Manufacturing came in at the same value as last month, but lower than expected.
The employment component of the ISM survey was especially weak.
None of these are good numbers, but it’s important to remember that they measure manufacturing, an increasingly minor part of the US economy.
Still, not a promising start to the Most Important Week in Macro(economics)™️.
Looking Ahead
We bobbed and weaved a good amount today, trimming long-term exposure after the ISM manufacturing print and adding some tactical longs during the Iran strike.
Make sure you’re in the chat to see those real-time calls.
At close of day we’re sitting around 30% cash, still holding the tactical longs, and still holding some downside protection we added on Friday.
After writing this piece, I wish I had closed the tactical longs. But you can’t have everything in life.
The only thing to do for now is continue to monitor the evolving geopolitical and economic situation. These are the times to be careful, raise cash, or buy put protection.
Be sure you’re subscribed to get the latest pieces directly in your inbox. As new information comes in this week, I’ll do my best to help you stay informed.
Good luck out there.
Disclaimer: The information provided here is for general informational purposes only. It is not intended as financial advice. I am not a financial advisor, nor am I qualified to provide financial guidance. Please consult with a professional financial advisor before making any investment decisions. This content is shared from my personal perspective and experience only, and should not be considered professional financial investment advice. Make your own informed decisions and do not rely solely on the information presented here. The information is presented for educational reasons only.