Okay I have done a couple of articles over the week as events played out, but since I’ve had more time to digest the ceasefire news and observe the market price action, I wanted to pen a quick article to discuss 2 points:
- Has the market bottomed on the Iran war – my honest assessment?
- Whether I am buying stocks here?
Has the market bottomed on the Iran war – my honest assessment?
Gun to my head?
I’m going to say 50 – 60% chance that the March 30 price action was the short term bottom in the S&P500.
Now could I be wrong on this?
Yeah, absolutely.
This is war, and there are a million reasons why the ceasefire could be broken.
Israel could continue to bomb Lebanon, Iran could refuse to reopen Strait of Hormuz unless each ship pays a fee, Trump could change his mind because… well he is Trump.
All entirely possible.
Which is why I said 50-60% chance, hence a 40-50% chance this is not the bottom.
This is an FH Premium article that I am releasing to all readers, in the hopes that it helps you in your decision making. It will not be updated going forward.
My latest macro views, as well as my full stock watch and personal portfolio, are shared on FH Premium.
Base case that the S&P500 has bottomed?
That being said, my base case here is that the S&P500 has bottomed.
Simple reason being that markets are forward looking.
To use COVID as an example.
In COVID – the market bottomed in March 2020.
Did COVID continue to get worse after that?
Yeah absolutely.
But that didn’t stop the S&P500 from putting in a bottom.
For the simple reason that in March 2020 Jerome Powell panicked and announced unlimited QE.
And when policy makers start to panic and do whatever it takes to save markets, that’s when stocks bottom.
Mapping that onto the Iran war – when did policy makers panic?
So what was so crucial on March 30 that triggered the interim bottom – the panic from policy makers?
Well, if you recall on 27 March, the US attacked Iranian LNG infrastructure.
And Iran retaliated against Qatar’s LNG gas.
This established a pseudo “Mutually Assured Destruction” regime in the US-Iran war.
In other words – attack Iranian critical infrastructure, and Iran will take out Middle East critical infrastructure, and oil goes to $200 and everybody loses.
And then the following Monday/Tuesday – comments were leaked to the media suggesting that Trump would be prepared to end the war even without a full reopen of the Strait of Hormuz (then confirmed by Pete Hegseth).
It seems that markets therefore interpreted this sequence of events as policy makers panicking – and committing to do whatever it takes to prevent the situation from spiralling out of control.
And with the benefit of hindsight and looking at market price action – I’m going to say 50-60% chance that was the interim bottom in the stock market from this war.
But like I said, there’s a reason why these things are in probabilities.
Could I be wrong?
Absolutely, and I have no qualms about changing my mind when the facts change.
If Trump is using this ceasefire as a cover to launch a land invasion against Iran, then you bet I’m going to change my mind overnight.
I’m not married to my positions, and the beauty of investing in public markets is that I have the liquidity to exit entire positions overnight if I choose to.
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But FH… the S&P500 is barely even down much?
I get a lot of questions from readers saying that unlike COVID – the market is barely even down by much.
And you know what?
I actually agree with that – at the index level.
That being said – if you look under the surface there is massive dispersion across industries.
Tech software is getting crushed so badly on AI fears that many big names are down more than 50% from highs.
Here’s ServiceNow for example – absolutely massacred:
While an entire asset class like Bitcoin is down almost 50% from highs.
Even something as plain vanilla as Ascendas REIT is down 15% and paying a 6.2% dividend yield:
And Hang Seng Tech down almost 30% from highs:
To be clear I am not saying these are good buys.
I am saying that under the surface if you look beyond the index, there are many single stocks that have sold off in a big way.
Which provides massive opportunity for stock pickers.
And frankly I don’t believe in the need to catch the bottom perfectly.
If we are going into a new bull run and stocks are going up another 100% from here – does it really matter that I miss the first 10-20% of the move?
Catching the first 10-20% move from the bottom requires taking massive risk that you are wrong and eat a big downside.
As long as I catch 80% of the move, I rather be safe than sorry in trying to catch the bottom.
Whether I am buying stocks here?
As shared earlier this week, the answer is yes.
I have been adding lightly to positions the past few weeks.
And with the ceasefire, that to me is a signal to deploy an additional tranche of dry powder around here.
As the ceasefire plays out, I would expect plenty of volatility across markets, and that could be useful to average into positions.
That being said, this is a 50-60% confidence of a market bottom in my view, so nobody is saying to deploy the entirely of your dry powder tomorrow.
But will I deploy a portion of my dry powder here – using any volatility as the ceasefire negotiations play out to add opportunistically to positions?
Well, I think the answer is yes.
And you can see the names I am monitoring on the FH stock watch, and the exact buys I make shared on the FH Premium portfolio update.
As always – love to hear what you think though!
This is an FH Premium article that I am releasing to all readers, in the hopes that it helps you in your decision making. It will not be updated going forward.
My latest macro views, as well as my full stock watch and personal portfolio, are shared on FH Premium.