Cause for Caution

MARKETS

We’re in Wait-and-See Mode

Observers are worried about a wider war.

At its peak on Friday the so-called “fear gauge” had spiked 28.77 percent from its previous close. The CBOE Volatility Index $VIX ended the day up just 16.10 percent, but we’re in a different phase than we were on Thursday.
Friday’s VIX spike was caused by reports Iran was preparing an imminent attack on Israel, and the Islamic republic followed through over the weekend. Its attack was both well-telegraphed and well-defended, with limited effects inside Israel.
According to The Wall Street Journal, Iran fired approximately 350 drones and cruise and ballistic missiles with approximately 60 tons of warheads and explosive materials from sites in Iran, Iraq, Yemen, and Lebanon.
A spokesman for the Israeli military said nearly all the drones and missiles were shot down before they reached Israel or otherwise failed to reach their targets.

The CBOE Volatility Index spiked on Friday on news Iran was planning to attack Israel. Iran followed through on its retaliation threat over the weekend.

The Japanese yen was higher in early trading on Sunday in an indication investors, traders, and speculators are taking a cautious stance on the situation. Brent crude oil surged to $91.05 per barrel upon opening in Asian trade on Sunday.
Israel’s war cabinet met on Sunday but did not say how it would respond to what was Iran’s first-ever attack on Israel from bases inside its own borders.
According to a senior White House official cited by Axios, President Biden, pressing for a diplomatic solution, told Israeli Prime Minister Benjamin Netanyahu on Saturday that the US will not support any Israeli counterattack against Iran.
The US said that the UN Security Council has a collective responsibility to ensure Iran complies with its resolutions and ceases its violations of the UN Charter.
Deputy Ambassador to the UN Robert Wood said in a statement to the council that in the coming days and in consultation with other member states, the US will explore additional measures to hold Iran accountable at the UN.

Approximately 17 million barrels a day of crude and condensate pass through the Strait of Hormuz.

Multiple members of the UN Security Council, including the UK, France, and Switzerland, have called for restraint, and China called for an immediate cease-fire in Gaza and a two-state solution for Israel and the Palestinians.
This is a light week for economic data, US retail sales data for March out at 8:30 a.m. ET today and housing starts, building permits, and home sales data coming too.
And Federal Reserve Chair Jerome Powell will participate in a moderated discussion with Bank of Canada Governor Tiff Macklem at the Washington Forum on the Canadian Economy tomorrow at 1:15 p.m. ET.
But the thing this week is geopolitics.

DEEP DIVE

Ark Goes Deep on AI

Cathie Wood sees something extraordinary here.

“OpenAI is at the forefront of a Cambrian explosion in artificial intelligence capability,” reads the email from Ark Investment Management to clients announcing that its Ark Venture Fund $ARKVX will devote approximately 4 percent of its total assets to the startup.
According to Wikipedia, the Cambrian explosion was a period approximately 538.8 million years ago of the early Paleozoic era when there was a sudden radiation of complex life.
Practically all major animal phyla started appearing in the fossil record during this explosion.

Ark Investment Management’s Arke Venture Fund has announced an investment in OpenAI that will represent approximately 4 percent of its total assets.

Ark’s $54 million closed-end venture capital fund, which launched in September 2022, has allocated approximately 80 percent of its assets to private companies, though it does invest in public companies as well.
Among its holdings is a stake in Elon Musk’s SpaceX
Chief futurist and investment committee member Brett Winton said in an interview with Bloomberg that progress in the foundation model space has been quicker than even he and his colleagues anticipated.
Winton told Bloomberg that Ark sees a $16 trillion potential market cap for foundation model-type companies by 2030.

Financials

Big Banks Navigate “Unsettling” World

It’s getting harder for Jamie Dimon to make money.

It’s getting harder for Jamie Dimon to make money.He’s been doing this for quite a while now, through all kinds of crises, real and imagined.
And he’s the only one among his very small peer group who was around for and made it through the Global Financial Crisis and the Great Recession.
CEO Jamie Dimon spoke during JPMorgan Chase & Company’s $JPM first-quarter earnings conference call about an “unsettling” global landscape, highlighting war and inflation as factors that threaten both the economy and his bank’s bottom line.
This was early on Friday, as that VIX spike was gathering steam. JPM reported a mixed set of numbers, with net interest income below forecast but provisions for credit losses well below forecast.
In fact JPM’s provisions were down 17 percent from a year ago, suggesting borrowers are still in pretty good shape. That’s good news; and CFO Greg Mason highlighted the global economy’s resilience as well as strong consumer spending and employment data in the US.
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Shares of JPMorgan Chase & Company $JPM, Wells Fargo $WFC, and Citigroup $C sold off on Friday on softer net interest income for the first quarter.

Wells Fargo $WFC also reported a steep decline in net interest income, and its average deposits and new loans declined too. Citigroup $C actually reported a slight increase in net interest income, though its deposits were also lower.
The soft net interest income figures signal that banks are beginning to lose the benefits of a rising-interest-rate environment as depositors take advantage of better savings vehicles.
Goldman Sachs $GS will report first-quarter earnings today. The key figure here is return on tangible common equity rather than net interest income, reflecting Goldman’s retreat from consumer banking back to its merchant roots.
Bank of America $BAC and Morgan Stanley $MS will report tomorrow.
Dimon’s been warning of impending doom for most of the post-pandemic era, forecasting a severe recession in late 2022 that’s yet to materialize.
And he said on Friday that financial markets are “too happy.” He clearly had that right in the very short term.
Let’s see what happens from here.