Morning Comment: Investors Should Still Keep Some Powder Dry.


  • No casualties means President Trump will not escalate the situation in Iraq/Iran further at this time.
  • However, the bounce could/should be limited…because the decline was very muted.
  • There are still a lot of unanswered questions…with earnings guidance & long-term interest rates at the top of the list.
  • Last year’s BIG rally was not fueled by the underlying fundamentals.
  • The upside should be limited near-term, so keeping at least some powder dry should be a good idea


No casualties means President Trump will not escalate the situation in Iraq/Iran further at this time.

The news that they were no U.S. casualties related to the Iranian missile strikes has given the global stock markets a huge boost from the big sell-off is was seeing last evening. The S&P futures…which were down almost 50 points at one point last night…are now trading in positive territory. With no casualties…and reports that Iran gave prior notice of the attacks…it has given President Trump reasons to avoid escalating the situation further…while still giving Iran the opportunity to say that they engaged in a “crushing response” to the killing of General Qassem Soleimani. In other words, it seems like the situation has stabilized…and the stock market is reacting accordingly.

However, the bounce could/should be limited…because the decline was very muted.

Of course, some people might be asking why the market is not rallying in an even stronger fashion if things have calmed-down in a meaningful way. Well first of all, we cannot be sure that this initial response from Iran will be the only response. Second, and more importantly, the stock market did not fall very much when this situation first began to play-out…so a major bounce would not be expected right here…at least not based on the newest developments.

There are still a lot of unanswered questions…with earnings guidance & long-term interest rates at the top of the list.

What we’re left with is a situation where we still have to be concerned that another attack will take place…but that should be offset by the Fed’s liquidity programs (its “not QE” QE program). We’re also waiting to see the 4th quarter earnings season…and the future guidance that goes with it…after the complete lack of earnings growth in 2019. On top of this, we’re all watching to see if long-term interest rates around the globe will rise…after a year when negative interest hurt global banks (and badly hurt them in the case of Europe). In other words, there are still a lot of questions that need to be answered in the coming weeks, so it’s no surprise that this morning’s relief rally is not a more substantial one.

Last year’s BIG rally was not fueled by the underlying fundamentals, so the upside should be limited near-term…and thus keeping at least some powder dry should be a good idea.

With this in mind, we believe that all investors should continue to keep some powder dry. Even it looks like there will be no immediate escalation of this situation, a new “uncertainty” has been introduced into the market place…as there is no guarantee that there won’t be any more retaliatory strikes from Iran. When you get more “uncertainty” in a market that has become quite overbought…and has rallied strongly in the past year without any material improvement in the underlying fundamentals…you get a market whose upside is somewhat limited over the near-term. Therefore, leaving SOME powder dry right now should not hurt investors. Instead, it will allow investors to take advantage of a strong pull-back if it takes place…and they can change their mind and still buy stocks in a more aggressive manner at a later date…without having to chase the market at higher prices.




Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

TheMaleyReport.com

275 Grove St. Suite 2-400

Newton, MA 02466

617-663-5381

mmaley@millertabak.com


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Jan 08, 2020 — 8:01 AM
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