The stock market is ignoring bad news, complacency, FOMO and greed chasing overstretched valuations; this will not end well. A breather is called for.
Last Wednesday morning, May 6th, the US government indicated that a one-page MOU was likely to be signed between Iran and the U.S., effectively reopening the Straits of Hormuz and paving the way for the removal of sanctions and a path to a wider agreement over time.
Gas prices had passed $4.50 per gallon nationwide, and consumers have been feeling a lot of pain, and clearly the administration did not want to see this escalate as summer started. Assuming that a “deal” would be signed Investors adopted a strong risk-on stance, piling on to the market, which led to the S&P 500 notching another record high to 7,389.94, and the Nasdaq Composite jumping 4.51% over the week also to a record high of 26,247.08. Oil dropped, the VIX dropped as well to 17.21 and the 10-year treasury stayed steady 4.35
Excellent results from AMD and other data center stocks helped as well, and for a change even SaaS stocks got a little sassy. This is where we stand – 10% above the 200DMA, and 5.8% above the previous high. I suspect there is a fair amount of complacency in the market, but holding onto stocks and letting the profits run is turning out to be a good strategy.
As we go to press Iran has spurned the deal as inadequate and its counter proposal includes territorial rights to the straits of Hormuz. Perhaps, the non-binding nature of the one page memorandum was not enough for the Iranians to take the leap.
The US President and the Chinese Premier are meeting on May 15th, in China, in what now could be a really important deal, especially as China has a lot of influence in the gulf, and gets a majority of its crude from Iran. I believe that there would be a face saving and compromise deal between both sides, brokered by China and could result in oil prices stabilizing at these high levels. Sure, oil prices will not come down in a hurry, and definitely not in 2026 but at least they will stabilize.
It is hard to call the top, and mostly futile, in a rampaging bull market and for the most part, our focus has been on finding the right stock to maximize returns, mostly ignoring the noise from macro economic factors. Still valuations are now stretched, and I’ve achieved far more than my planned targets. It is important to call out complacency and the relentless melt up in stock prices feels exactly like that. I say that because bad news is completely ignored. This market isn’t pausing to take a breather. It is plowing right through all economic weak signs like high inflation, weak jobs growth and lousy customer sentiment. The chances of a pullback will increase as we get past earnings season. I suspect the blow off top for this bull run could come around Nvidia earnings, or perhaps if there is a deal in China this week. Therefore, I would prefer to take some profits (sell the news) when there is more confirmed visibility.
The hot CPI report with an annual increase of 3.8% is going to hurt.
I'm holding for now, but will likely take profits in a week or two.
mar
