Is the market wrong? Are all buyers simply stooges, ignoring headlines like "Fallout Deepens After U.S. Strike," from the Wall Street Journal or "Standoff Builds as Iran Drops Nuclear Limits"?
Have investors already forgotten the vows of retaliation by Iran for the assassination of its terror mastermind General Qassem Soleimani? Are they collectively whistling past the coming graveyard when Iran strikes wherever is does and whenever it does?
It sure seems like it. Just a short 12 hours ago, the S&P futures were looking down a percent. A continuation of last Friday's selling on President Donald Trump's escalation -- mostly viewed as rash by the mainstream media -- would have made a lot of sense, considering that the Dow Jones industrial average was down 216 points at one point. Didn't the outsized decline make more sense than the rally off the lows?
What does it mean?
I think there were many factors at work. First, investors have learned that these kinds of events are considered buying opportunities. We have had three conflict-related sell-offs since President Donald Trump was elected, and they were all moments to buy, not sell. In the late summer and early fall of 2017, the tension between U.S. and North Korea was palpable, especially after Trump called the leader of North Korea, Kim Jung-un, "Little Rocket Man" at the U.N. In the wake of those provocations of the trigger-happy Little Rocket Man, the S&P fell from a high of 2491 on Aug. 8 2017 to a low of 2,417 on Aug. 21, a 3% sell-off during the heart of the crisis.
The market then proceeded to rally 10% from that August low as tensions receded and tax reform was passed.
Second, in August of 2018, the U.S. fired 100 missiles at a Syrian airfield in response to a suspected chemical attack. The futures plunged the night of the event, but it had absolutely no impact on the market; in fact it rallied for three trading sessions after the launch.
Finally, in a belligerent act of terrorism, Iran attacked and wiped out a big chunk of Saudi oil infrastructure, in an engagement that now seems likely to be ordered by the now dead General Qassem Soleimani. Again, there was tremendous concern that we would retaliate in favor of our long-time ally. Again, markers barely responded. The next trading day the market was down, but the damage was recouped and some the very next day.
So, it is entirely possible that Friday's decline and Monday morning's sell-off represent a typical reaction to what is being regarded as a typical event and that meant you had to buy when things were the most ugly.
I find this somewhat incredible, if only because the mainstream press has presented this assassination as an act of war by our president. What, by the way, was the drone attack against the Saudi oil infrastructure? The market's sneering at the event, even as the chorus of war now was so loud that you couldn't cancel the noise no matter what. It's World War III vs. What me Worry? and the latter won out.
Second reason why the market could rally? A stock rally is not necessarily out of sync with a war event: Stocks have historically rallied when the cannons go off. I thought some would actually wait for the cannons, but maybe the assassination is enough even as Iraq, more and more a client state of Iran, recommended that U.S. troops be expelled.
Third: overexaggerating. Hate him or like him, Trump -- you have to admit -- rarely gets a break from mainstream media outlets. Perhaps, though, the buyers are saying that the press is always negative against Trump and this is a chance to get into stocks before others do. I know as someone in the news business that a majority of articles did read like there could be an Apocalypse Now. Maybe if we get the retaliation, these buys will be revealed as dead wrong. But I don't like to go against the market's conclusion and the market says that there's no war and Iran may be a paper tiger.
Fourth, an amazing number of stocks do well when interest rates fall, as they have, everything from companies with big dividends, of which there are plenty to the highest growth stocks with secular growth stories.
That explains why most of the drug stocks are up, they are higher yielding stocks with no economic sensitivity, which is what's needed if you think the economy will be slowed by war.
Some of the techs do quite well when the economy slows. So we get a recommendation to buy Salesforce.com (CRM) by RBC and the stock simply ignites, roaring more than $6, or 4%. Salesforce is a $150 billion company. That's an amazing move.
Apple (AAPL) caught two price target boosts and the positive chatter caused Apple's stock to rally a couple of bucks. Anything good for Apple is good for a host of semiconductor stocks.
A recommendation from a small outfit called Pivotal moved the stock of Alphabet (GOOGL) $30, or more than 2%. Google's got legs: You can buy Amazon (AMZN) , Twilio (TWLO) , Spotify (SPOT) and a host of other high growthers that most likely won't see a slowdown from an escalation in the Middle East. We got no downgrades of substance and we are about to hear some very positive news out of CES, the annual consumer electronics show and that carries more weight than what Iran might do, at least in the eyes of the buyers. Google wags FAANG like Apple does, because of the influence of exchange-traded funds, so Amazon and Facebook (FB) enjoy a nice rally.
Fifth, there's the political aspect. I think that war puts foreign policy experience over economic reforms. That could be a boost for Joe Biden's campaign and remember that the stock market wants a Trump-Biden contest, not one against Sens. Elizabeth Warren or Bernie Sanders, who are viewed as radicals by Wall Street.
Finally, sixth, we've heard it all before. Iran's been in a state of war against non-believers for years and years. The notion of retaliation by Iran doesn't matter, because the principal architect of clever retribution was killed by the U.S. The "death to America" chants aren't anything new. The notion that Iraq has suddenly fallen in the sphere of Iran -- something the media seemed so surprised by -- was a given on Wall Street. The monied people have known for years that Iraq fell to Iran, so anything our country does in Iraq is justified, because Iran has been our enemy for years -- we just refused to do anything about it. Now that something is being done, I actually think there are people on Wall Street saying "it's about time." If you think it's about time, then that may be the only break you get to buy.
I, myself, am a little incredulous about the move. We are overbought. There is way too much complacency. Way too much greed. Not enough fear. It's too darned pat, especially in the face of earnings, even as a weaker dollar could give the international stocks a boost.
It seems glib to me not to wait to see what Iran does to be able to buy. Why should we doubt their resolve? Their desire to kill Americans seems unbridled. But the tech stocks say I am wrong. The dividend stocks say I am wrong. The slowdown stocks say I am wrong. That's a whole lotta wrong to take in, and it's daunting for me to fight the FAANGS and the drugs and even some retailers, without something going awry -- and awry sooner than later.