Point Frederick – Spinnaker – May 21, 2026
Don't be surprised if the war in Iran ends soon.
What if the war in Iran ended quickly and quietly? Not with a bang, but with a whimper. An anticlimactic end to a televised war far away.
There could be a tidal wave of crude that hits the market quickly, if the Iranians open up the Strait of Hormuz as part of a deal. In that scenario, the Strait will revert to its former status as quasi-open. The Iranians always threatened it. They will continue to threaten it.
One way to encourage a settlement might be a surgical strike on some (but not all) of the Iranian oil and gas infrastructure. Such a strike might be bullish if it ended up accelerating the timeline for a withdrawal.
Or, the US could refuse to sign an agreement and just pull out. Attack the energy infrastructure that feeds the IRGC and their terrorist proxies and then leave in the middle of the night with an Irish goodbye. The regional allies are more than equipped to take care of themselves, especially if they ally with Israel. It might even lead to a more formal tie-up between Israel and the friendly Gulf states.
Anything is possible.
An American withdrawal will be deemed by some as signal of the degradation of its power. I’m not so sure if that would be true in a practical sense. They can come back any time. It might be interpreted as evidence of the lack of political will to tackle Iran. In practice, it might be rational for US planners to say that the juice isn’t worth the squeeze, that the marginal gains of prolonged deployment or future kinetic activity is unlikely to outweigh the cost in every sense.
Nobody seems to be paying that much attention to the war. People are fickle.
It would be interesting if equities sold off on such a move in a buy-the-rumor-sell-the-fact setup, even with plummeting oil prices.
My sense is that inflation expectations are moving persistently higher. Any move lower in oil prices, persistent or not, will be irrelevant on the margin. We opened Pandora’s Box.
Everyone assumes that the US is like the cat up the tree. What happens if there is a negotiated deal soon? Then the market and the politics will move on, especially if there is a flood of stored oil that hits the market.
‘If accurate, the deal being negotiated right now is very favorable to Iran. US unfreezing funds and exempting Iran from oil sanctions while negotiations proceed; recognizing Iran‘s right to enrich at low levels. The sticking points remain phasing (US wants a deal immediately, Iran wants one in phases), and the 400kgs of 60% uranium.’
Fed Chair Turnover Isn’t Bullish Equities, Traditionally
It could be pretty choppy for the next few months as everyone tries to get a sense for the new boy.
‘Equities have historically posted sharp drawdowns during the first three months of a new Fed Chair’s term.;
Stock investors are high on hope and low on cash
I suppose the logic here is straightforward. Equities are a good place to hide in an inflationary environment. I think, though, that this makes sense for warm inflation. It doesn’t work for hot inflation.
‘Two closely followed surveys from Bank of America show that institutional investors just notched up their biggest monthly drop in cash allocations for two years and their biggest leap ever in allocations to equities. Cash now makes up 3.9 per cent of their assets. Private clients — individuals with at least $3mn in investable assets, for whom the US bank manages $4.5tn — have less than 10 per cent of their assets in cash, too. That is the lowest since the survey began.’
BofA Sell Signal Triggered by Cash Levels
More on the BofA data on cash levels.
‘Global equities SELL SIGNAL has been triggered again: The average cash level among global fund managers fell to 3.9% of AUM in May, down from 4.3%, the largest monthly drop since February 2024. A cash level at or below 4.0% triggers BofA’s contrarian sell signal for global equities. Historically, the median 4-week loss in global stocks following this signal across 24 instances since 2011 is -1%, with the largest recorded loss reaching -29%. Is the market heading for a correction?’
Stocks Advance as Investors Return to AI Trade: Markets Wrap
Nvidia is a nothingburger, or so it would seem from the immediate reaction after-hours. This is giving the green light to technology names in Asia. Party on, Garth.
‘“Asia’s technology markets are riding a clear relief wave today, with Nvidia’s blowout earnings effectively pressing the reset button on regional sentiment,” said Hebe Chen, an analyst at Vantage Global Prime. “Easing geopolitical tension has added to the risk-on tone, helping revive appetite that had been squeezed by rising bond yields and persistent macro uncertainty.”’
Hedge Fund Shorts at High Levels
I suppose hedge funds will be the marginal buyer, unless these shorts are against long call positions. I suspect there is some of that going on. The hedge funds sold short and then used calls to chase it higher.
‘Retail keeps panic-buying equities while hedge fund short exposure just hit fresh 10-year highs. The market is becoming completely schizophrenic.’
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