Defense Stocks Surge Amid Broader Selloff
Do you know about the Strait of Hormuz?
Everything looked really good until the last two hours of trading on Thursday, a market at ease in the aftermath of comforting words from Fed Chair Jerome Powell.The major indexes were well into the green, up more than 1 percent, powered by a mini-tech resurgence.
And then came the reversal, a late-day tape-wreck probably wrought by geopolitics.
What you see below is the S&P 500 selling off, hard and defense contractors Lockheed Martin $LMT and RTX Corporation $RTX rallying, hard, into the close.
This curious price action comes almost a full two days after Iran said it would respond to an air strike on its embassy in Damascus by punishing Israel.
As the Fed Guy, Joseph Wang, noted on X, although we heard from six central bankers on Thursday, this was not about “Fed speak.”
And Federal Reserve Bank of Minneapolis President Neel Kashkari said we may see no rate cuts this year if inflation continues to move sideways.
On Wednesday, Powell said basically the same thing, that he and his colleagues are waiting for more evidence their fight against inflation has succeeded before trimming the benchmark fed funds target range.
Powell emphasized the importance of inflation expectations trending lower, and that’s what’s happening.
All told, Thursday’s speakers just weren’t this kind of intraday-downside-reversal important. That move suggests an outside shock, something Mish Schneider suggested last month in a Weekly Market Outlook represented the most significant threat to this bull market.
There was no specific indication of a new crisis.
But Brent crude oil spiked above the $90-per-barrel point for the first time since October, and West Texas Intermediate added another 1.67 percent. And this is the day after OPEC+ said it would hold steady at current production levels.
As Samuel Smith and Marco Pinchetti explained in a post on their Bank Underground blog on Thursday, geopolitical risk can show up in two separate and distinct ways: deflation at the macro level, and inflation in the energy sector.
Stay tuned.