Is The Iran Conflict Priced In?

1.) SUPPLY CHAIN – Given all of the issues with the Iran war and the Straits of Hormuz impacting the movement of oil, you'd think The Global Supply Chain Pressure Index (first chart below) would be really high. But instead, it is well below 2020-22 and 2018 levels. The Baltic Dry Index (second chart) is also showing significantly less pressure on shipping costs than in previous occasions. The market looks to have priced, or is close to pricing, the Iran conflict in. See point 3 below.

2.) CHIPS – What’s a party without chips!? Markets actually feel the same way… bulls need chips... semiconductor chips. When technology is leading, the semiconductors have to be involved. If they’re not, something is missing. Last week, we saw the strongest evidence yet that this move is real. The equal-weight technology index is near all-time highs. That tells us participation is expanding and not just a handful of names carrying the load. The only group that hasn’t confirmed yet is large-cap tech. But what really matters is that semis (chips) are already at new highs, up over 9% in the last one-month period. Both the cap-weighted and equal-weight versions of the chip indexes closed last week at new highs. I don’t think chips hitting new highs is bearish for tech. Is everything awesome? No. Of course not. When is it ever in market space? Software is a disaster, as a group still near the lows. But tech as a whole has held up well. There’s signal in that. If tech can do this with software dragging, what happens if software simply stops going down? And what if it starts going up?! Could semis see a correction, or some sideways action to digest these recent gains? Yep. Do I think that’ll end the bull in that sector? Nope.

3.) VIX – How would an investor know when something like the Iran war is priced in? Well, I think we can answer that now that “peace” talks have broken down and the ceasefire didn’t seem to last much more than a few hours. With the US taking aggressive blockade-style action in the Straits of Hormuz this weekend, you’d expect equities to open DEEP in the red and for VIX to fly! Neither is happening right now. S&P 500 futures are down just 0.48% and VIX is up just 1.69 points to 20.91…BELOW where it opened this morning, which was 21.17. This tends to suggest that the Iran situation is either priced in or very close to it. As I mentioned last week, expect oil to continue to be volatile with its volatility index still near 80. Oil is trading at $103.92, down from its open at $104.44. Could this be the start of a lower high, marking the top in April like we’ve discussed?