How much should we be down with oil shooting through $70 and the 10-year Treasury yield spiking over 3% and the president isolated by European allies over his hard-line Iranian stance?
I would say if this were the first week of February we would be down 5-7% pretty much in a straight line.
But now we go up?
How can this move be rationalized?
Couple of thoughts. First, there's genuine confusion right now about the value of strength. We like strength in employment because there's no real wage inflation. We like strength in commodities because it means the world's not slowing down. And we like strength in consumer spending like we heard last night in Disney (DIS) and we have been hearing for weeks now in earnings season.
At the same time, as I wrote here yesterday, the market's not doing what it should do. Oil spiking this fast is not necessarily healthy. It's also at this point artificial. We know that it isn't demand as much as fear of disruption. We also know that a slow, gradual rise in rates is good, but a spike is bad.
To me that means it is a mistake to really trust this market, especially if it opens up. There are way too many people who remember February when the market fell apart for many of the things that are driving it now and I think those sellers will materialize as we go higher.
I am not saying that it's one more sucker's game. I am sure there are people who feel relieved that our nation pulled out of the Iranian deal and there wasn't an immediate war-like reaction.
But that's not enough to undo the fact that an identical set of circumstances to what would have felled a market is now causing it to rally.
Or, to put it another way, I would rather be a seller than a buyer here, because with these inputs I can't think of a reason to buy other than the futures are higher and I think there should be more to it than that.