Priced Before Proven: A Range Resolved, a Ceasefire Assumed, and a Labor Market Going Quiet
By Eli Gal Levy, Senior Analyst
US/Iran Conflict – Deal?
The week’s story is easy to state and harder to sit with: the market got paid for believing things that have not happened yet. Stocks rallied to fresh all-time highs — every major index except the Nasdaq — and the move was set off at the very start of the week by a simultaneous drop in oil prices and Treasury yields after the Treasury Secretary suggested a ceasefire with Iran was close. By Friday there was still no deal.
Oman/Crude Oil
The only agreement visibly in the works appears to be one with Oman, and a report late in the week described Iran’s draft plan as banning the United States and Israel from the Strait entirely — the opposite of the “freedom of movement” language that started the rally on Monday. Crude and the curve are trading as if the probability of a resolution is high. That’s a position, not a fact.
S&P
The cleanest thing that happened was technical. After roughly three months of chopping inside a 7,250–7,600 band, the S&P broke out to fresh all-time highs on Wednesday. A three-month range resolving upward is an incrementally bullish development on its own terms, and it tends to bring a second wave of buying that has nothing to do with fundamentals: performance chasing by managers who are behind the index, and short covering by anyone who spent the summer positioned for the range to hold.
Call volume in the S&P complex stayed elevated all week, which is what it looks like when the fear of missing a move overtakes the fear of the move. The counterweight is just as mechanical — a market that gains this much this fast is stretched near-term, and a breakout that needs chasing to sustain itself is the one most exposed if the catalyst behind it never arrives. FINISH READING and VIEW CHARTS
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