Wall Street again hopes for the best
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It has now become a familiar Wall Street two-step: Stocks stumble in the morning and mostly recover by the end of the day after President Trump says something that's viewed as reassuring about the Iran war.
Why it matters: Investors are jumping at any sign of an end to the Iran war — now in its third week and far longer than they initially predicted.
- They're clinging to the Trump put, the idea that the president will reverse himself if the markets react badly to White House policy.
- It's a concept with legs even in a war — a situation that is not unilateral. Even if Trump wants this to end, Iran has to stand down, too.
Catch up quick: Oil prices retreated from their highs Thursday, and stocks pared their losses after Trump said that he wasn't planning on sending ground troops into the Middle East.
- Investors were also apparently mollified by comments from Israeli Prime Minister Benjamin Netanyahu, who said that Iran no longer has the capacity to enrich uranium or make ballistic missiles.
- It was taken as a signal that some of the war's aims had been achieved.
What they're saying: "Albeit minor, this is the first sign of de-escalation that may lead to others in the future," Jim Caron, chief investment officer at Morgan Stanley Investment Management, tells Axios.
- "It's too soon to say for sure, but if there is willingness for both sides to draw bright lines around what can and cannot be attacked is a new data point for the market to assess."
- "Any little positive thing can really generate a big move in the market," says Jose Torres, senior economist at Interactive Brokers.
- "Traders are waiting for the Trump put to kick in. This is the TACO trade. Trump always chickens out."
Yes, but: Friday morning, Axios' Barak Ravid is reporting that the White House is weighing plans for a "dramatic escalation" to the war, which could include boots on the ground.
The big picture: While investors may be hopeful, it has still been a rough year so far.
- After reaching an all-time high, the S&P 500 stumbled on anxiety that AI would eat the software market, dragging down the tech stocks that had run up for the past few years.
- And then there's the private credit fear.
- The war hit on top of that, bringing with it a massive oil shock and fears of inflation and slower economic growth.
"We still see complacency," per a note from JPMorgan global equity strategy analysts Wednesday. They say the market is pricing in a "quick end to the war."
- "This is a high-risk assumption."
By the numbers: Though the S&P 500 closed down just 0.27% Thursday, it is now more than 5% off its all-time high.
- The price of Brent crude oil is up almost 50% from where it was before the war.
- And investor sentiment isn't exactly great: It deteriorated over just the past day after the news Wednesday night of tit-for-tat attacks on energy facilities in Iran and the UAE, Caron said.
The bottom line: No one really knows what exactly drives markets up or down — investor hopium could prove prescient.
