Sell everything (except oil)

A Reuters Open Interest newsletter

Sell everything (except oil)

By Jamie McGeever, Markets Columnist 

The price of stocks, bonds and gold fell sharply on Thursday while oil surged, as fading hopes for de-escalation in the Middle East re-ignited inflation fears and left investors approaching the quarter end in a deeply gloomy mood.

In my column today I look at why, despite war, $100 oil and deep economic and policy uncertainty, the U.S. equity outlook may still be bullish. Barclays strategists just raised their S&P 500 forecast, and they're not lone wolves on the Street either.

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* The land of fake believe

One day, markets rally after U.S. President Donald Trump says his administration has presented Iran with a peace plan and the two sides are communicating, even though Tehran denies it and says the plan is one-sided. The next day, markets tumble on pretty much the same headlines and newsflow.

Who to believe, and when to believe them? It's difficult to say, and there's no obvious rhyme or reason to how markets respond. Investors could do a lot worse than simply buying after a down day, and selling after an up day. If truth is the first casualty of war, no wonder investors are floundering.  

* Bond auction blues

Thursday's $44 billion auction of 7-year U.S. notes was pretty terrible - weak demand, a big tail, and dealers left with a sizeable slice of the offer. It was a similar story in Wednesday's 5-year auction and Tuesday's 2-year sale. 

Investors are clearly rattled by energy prices, war in the Middle East, and inflation. With the total of foreign central bank-owned Treasuries in custody at the Fed falling sharply too, these are nervy times for Treasury. And markets in general.

* Technically speaking

If the U.S. economic 'fundamentals' aren't looking that great for stocks, the 'technicals' are also starting to turn sour. Wall Street's three main indices have all broken below the 200-day moving average, a chart level that often provides long-term support or resistance, depending on the market's direction.

Technical analysis has its critics, but when big levels like 200-DMAs are breached, more investors take notice. "Nothing good ever happens below the 200-day moving average," investor Paul Tudor Jones allegedly said. Market bottoms and the start of rebounds happen, although it could be some time.

With visibility on the U.S. economic outlook greatly reduced by the fog of war and $100-a-barrel oil, it might seem an odd time to be getting more bullish on stocks. But from a valuation, earnings, and growth perspective, there's a compelling case. 

Strategists at Barclays outlined it this week as they raised their S&P 500 price and earnings forecasts, and they're not the lone bulls. Corporate America won't entirely escape the economic fallout from the Iran war and energy shock, they argue, but it's relatively well positioned nonetheless.

Take tech, the juggernaut that powered Wall Street's boom in recent years. It has sputtered lately on worries that firms are overspending on artificial intelligence, while concerns about AI disruption have rattled the shares of software companies.

The "Big Tech" selloff has been, well, pretty big. The Roundhill "Magnificent Seven" ETF, for example, is down 10% this year, three times as much as the S&P 500. This means the tech sector is cheaper now than during the depths of the "Liberation Day" turmoil a year ago.

Cheap enough to spark a strong rebound? 

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