Israel-Iran Conflict Impact On Markets
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On the Tape.

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Welcome to the Risk and Reversal podcast on Monday, June 16th, day after Father's Day. Dan Nathan, how are you? I'm doing great, Guy.

Hopefully you enjoyed that. We had a bit of a rainy day, rainy weekend. Seemingly each weekend of 2025 in the Northeast at least has been raining. Not good. If you rented a house in the Hamps, you know what I mean? You're not too excited for June so far here. But rainy, also a rainy Father's Day. I'm not into these Hallmark holidays, God. Just be really clear about that. So it appears that my kids and my wife are not into it either. Yeah, Father's Day is an afterthought.

thought without question. But what's not rainy, look at this segue, is the market. We'll get into that. But we have a big week here on the Risk Reversal Podcast. You're speaking with Dan Ives. A wedlush. Later today. Yeah. We're going to go through all things Mag7, kind of look at the broader context for the back half of the year, some of the names, some of the sectors that he's most focused on. That'll be good. Dan always brings it. And he always brings the outfit there, too. He's got a great fit, as the kids say, Guy. Yeah.

Well, that makes for a great video. Danny Moses is sitting down with Larry McDonald on the On the Tape podcast. We have Peter Buchvar and then Stephanie Guild is speaking with us. That'll drop on Friday. She of Robin Hood fame. Yeah, no doubt. It'll be interesting to hear what she sees among the

their users. You know, that's something that you and I have learned a lot about. We've been a partner of Robinhood, I think, going back to mid last year. We took part in their first annual summit late last year. And you and I were very impressed with the level of rigor that a lot of those folks put into their investing and their trading. So that'll be really interesting with stuff. Guild. All right, guy, what do you want to do here? You and I did not

chat about the war raging in the Middle East. It started, I think, you know, Friday morning. Yeah, Thursday night into Friday morning. The stock market cared for like a little bit. Crude oil investors or traders there cared. It's down today, even as that moves on. Weird week in the market. We have Thursday. Market's closed for Juneteenth.

So we have the Fed Wednesday afternoon. So it'll be interesting because normally you see some sort of reaction, right, after the Fed presser. And oftentimes you will see a reversal of that move if it is extreme on the Thursday. So we'll see whatever happens if, you know, cooler heads prevail into Friday morning. And, you know, let's see what the yields do after that. Any thoughts, I guess, into Wednesday at this point? Because it's war and then Wednesday we've got the Fed.

Yeah, well, I mean, that is the lead, clearly, what's going on over the last three or four days without question. And you said the market obviously had a reaction function on Friday. And it's seemingly, I think, taking a look around and saying, OK, the worst case scenario didn't play out over the weekend. So how are we going to sort of reposition ourselves? And quite honestly, I don't know what the worst case scenario is in terms of the markets.

I think it's maybe potentially the closings of the Straits of Hormuz or something like that, where you see a significant move in crude oil, not from 68 to 74, but from 74 to something a lot higher than that. Obviously, that's not taking place. So the market is settling in again. And I think it's just sort of business as usual in terms of this lower left, upper right. Now, if things were to change, if things were to escalate, if the United States were

finds its way into this thing in ways that they don't want. Maybe we'll have a different conversation. But right now, that's seemingly backburnered, and now the market's going to focus on whatever Fed commentary we hear on Wednesday. I think it's a foregone conclusion that they're not going to do anything. Maybe the commentary is important. They're obviously getting pressure from a number of different fronts to lower rates, but they're seemingly pretty well dug in here. Yeah, and so on the war front,

if you saw oil really start to move higher on a protracted sort of situation, I think your point is a good one. If the U S if we stay out of this, maybe it's one of those sorts of things that will not put too much pressure, um, as it relates to investor sentiment towards the markets. I mean, there's another way to think about it that, you know, oftentimes, you know, wars can be inflationary for a whole host of reasons, obviously crude oil moving higher. Um,

would be a big one. And, you know, sometimes that kind of takes a play from the feds playbook, right? So in times of uncertainty and, you know, like I think war would be one of them, especially when, you know, we are, um, meant to support some of our allies. Israel is one of our best allies in the world, but you also would have thought that Ukraine might have been one of them. We've also made certain security guarantees, even if not, um,

explicit as it relates to, let's say, Taiwan, you know, the U.S. could be deemed to be like spread thin, right? If you think about that. And under those scenarios, you would expect the Fed to possibly lower interest rates just to keep, you know, the kind of, you know, money flows going, if you will. You don't want to see things seized up. So there's a couple

different ways to kind of think about this. Obviously, none of us know which way it might go. But right now, investors really don't care. On Friday, as they were trying to digest all of this, obviously, you saw stocks sell off. But today, getting it back, and it's interesting to me, Guy, because, you know,

This morning relative to Friday morning, yeah, we've had a few days to kind of digest it and hear what the pundits have to say and the ex-generals and the security folks and all that sort of stuff. But it doesn't seem like we're any closer to this thing being done, even after they've made some serious progress, I guess, you know, taking out some of the

higher levels of, you know, the military forces and a good bit of their, like the fact that they are literally controlling airspace over Iran, like now this would be the Israelis is pretty fascinating. But then if you look at, you know, other sort of situations with Gaza, you know, you're more than two and a half years into this thing and they are still

operating like it just started. And then if you think about their ability to kind of, I don't know what you call what they did with Hezbollah guy in Lebanon, but, you know, they're back in Iran into a corner because Hamas and Hezbollah are their two proxies in and around Israel. Obviously, their own country is not far, but they've tried to stay out of this on a full force sort of thing. And now it seems like the U.S. is trying to stay out of it. So, you know, who knows? This could be a very protracted situation.

Well, if you listen to the pundits over the weekend, the people that understand these things, you know, the generals that work for MSNBC or Fox or CNN, I mean, they've all seemingly said the same thing that

you know although it appears as though worst case scenario has been avoided you just said it you know a protracted thing here seems there's a somewhat inevitability to this unless somehow um iran comes to the table in ways that the united states wants them to and then obviously subsequently israel and things get hammered out i mean i guess that is the best case scenario to a certain extent maybe that's what the market's looking at today but

In terms of the pricing for the market, not a lot going on this weekend. And there's option pricing, I think almost a 2% move for the S&P, maybe a 2.2% move for the NASDAQ this week. You mentioned there's a holiday on Thursday, not a lot of earnings.

We have a little bit of Fed speak, but not a lot theoretically to sort of move the needle this week. Yeah. And this is an interesting Fed meeting because, you know, zero percent probability that lower interest rates. I think that's obviously been fairly well telegraphed. CME Fed fund futures have been suggesting that for a while you have this Fed presser. And this is the one where, you know, the president, the White House has been

very adamant about what they want the Fed to do. You know, you've talked about this, the idea of like a shadow Fed president as we get to less than one year, you know, of when Fed Chair Powell, his term ends, you know, at some point, and I have no kind of...

memory of history in this regard, but at what point the president usually nominates a chair, right? If you think about it, the next chair. And with the sort of Senate that we have right now, you can probably take it to the bank that that person will be confirmed. You know what I mean? So then it goes back to what is the history of this person as it relates to monetary policy, how they think about it,

And does the market, does the Fed fund's futures, do market participants start solving towards that? And we know that Trump is only going to appoint somebody who's really dovish. And so at what point does, I mean, do folks start to focus on that person relative to what the current Fed chair might do? No, fair enough. And I think there's seemingly...

I don't know, some rattlings around potentially Scott Besson going from Treasury to the Fed. And then that obviously leaves an opening at Treasury. I've heard the name Kevin Warsh for that. You know, again, to your point, I don't know historically in terms of the calendar when you start hearing names. I think things obviously under this administration are a little bit different in terms of timeline and calendar. So we'll see. But, you know, there's an obvious want, I

I think in the, in terms of this administration to move on from Jerome Powell, although I don't think they're going to sort of show him the door. I think he makes it through. I think it's may of next year, if I'm not mistaken. So we'll see in terms of the market pricing things in, you know, there's, there's still a lot of back and forth in terms of what the market should be looking at. And I think that's one of the reasons why yields will remain so sticky here, like four and a half percent. I mean, you can make a great argument that yield should be lower, but,

in terms of a number of different things, not least of which some of the slowdown we're seeing on the flip side, the amount of debt that's rolling around out there. You can make a very strong case that yield should be higher. And I think that's the tug of war that we're seeing. But in terms of the S&P,

Right now, it's all systems go seemingly, Dan. Yeah, so we're here at 60-20, the prior all-time high, 61-50 on February 19th. Lots of calls that the pain trade is higher, that we're going to make a new high very soon. You know, it is interesting to see that, you know, the Israeli equity market, which is, you know, kind of tiny compared to ours, is actually up today, and it's recouped a lot of the losses that it had late last week. I think, you know, when the bombs started hitting or...

Tehran, I think their market was probably close to closed one way or another on Friday. So the fact that it's up today is pretty interesting. Your point about yields,

And the dollar, you know, normally in these sorts of times, you would see folks, you know, kind of coming after U.S. Treasuries. You'd see them coming after the U.S. dollar. The fact that we don't see that, the fact that the U.S. dollar is hovering right near those multi-year lows is pretty interesting. You make that point about four and a half.

You know, in the 10-year yield, it's like 4, 4, 4 right now or whatever. But I mean, you know, give or take five, six basis points. That's what we've been trading in over the last, you know, month or so. And I guess the question that I have is that, okay, you have a VIX at 19.5. I think it got under 17 last week when it looked like there was a reasonable level of complacency. I guess the thing that sticks out to me is this U.S. dollar.

Okay, and you know, just to be clear on Thursday night, we spent like 14 minutes right out of the gate on the US dollar. We like kind of kicked it around as a group, then we had a guest on and then we kicked it around further. We didn't talk a whole heck about stocks or the stock market.

And to me, that was almost like a contrarian signal. I wonder if you would kind of agree to that. But I think the lower that U.S. Treasuries go, I think the lower that you see the U.S. dollar, that to me is an indication of volatility that is not being represented in the stock market. Now, you could say...

that a kind of weak dollar is great for the U.S. stock market. I think we have maybe 35, 40 percent of the S&P 500 sales come from overseas. Now, 60 percent of them are here and subject to tariffs and the like. So maybe that kind of cancels each other out. Lower yields, right? Better for, let's say, for the most part, you know, lots of companies in the S&P or small caps that have to

borrow and then we have this situation where we have anticipation of lower taxes you know what i mean um so i mean there's a lot of i guess tailwinds for stock market and then mike wilson in his note this morning from morgan stanley he's talking about some of those tailwinds he's talking about some earnings revisions to the upside for the s p 500 which might be that thing that causes new highs in the s p guy historically

To your point, in times like now, you'd see a flight to safety or perceived safety in the form of the US dollar and the US bond market, which, again, makes the dollar go higher, makes yields go lower. And we're not seeing that, which I think, to your point, is worth watching. And there are a lot of people that will say that it

a weaker US dollar is a bit of a tailwind for the multinationals. But there is a point of diminishing marginal returns that if the dollar continues to get much weaker, I think other things start to happen. And there are a lot of people that are talking about the weakness in the dollar is sort of that canary in the proverbial coal mine to take a look at. And that's coinciding with

With yields, again, being stubborn around, you said it, 444, but let's just call it four and a half to round up a little bit. I mean, that should seemingly be a bit concerning. And for whatever reason, the market's choosing to look past that. But I think if we see continued weakness in the dollar, which, by the way, I do expect, and continued weakness in the bond market, yields going higher, which I continue to expect.

I think at some point the stock market cares. It's obviously not now, though, and not at these levels. But to me, it's just a matter of time. Yeah. And, you know, there's a couple of groups that stick out to me as we think about, you know, the potential for new highs and the level of complacency that we're seeing among equity investors. And we keep talking about this, but

The regional banks, if you look at it through the lens of the KRE, they just can't get out of their own way, guy. And it's something that, you know, maybe I'm like too focused on this sort of thing. But if you look at the KRE, I mean, it's down like 5% in the last week or so. And I look here and I just want to kind of think about like a JP Morgan, the largest bank in the world. This thing has been basing over the last month or so. And you could say on a relative basis, it's underperforming the S&P 500. That's grounded...

higher, grounded higher, grind higher, you tell me. And I say to myself, why aren't bank stocks participating? You could say, well, it's rotation. The MAG-7's back on its horse, that sort of thing. So I'm not sure. Thoughts on the banks? Because it's also, you know, small cap stocks haven't really participated here. But, you know, if rates were to start signaling, you know what I mean, the sort of easing, right, that we might see for a whole host of different reasons, you would think that regionals would act better than they do right now.

If you look at the small caps, and we talk about this, and then you overlay the KRE, small and mid-cap banks, it sort of makes sense to me because I think the story that it's telling is things are slowing down, things are weakening, and you're seeing it in

in the moves that we're seeing in these regional banks. I think we traded down to about, I want to say 49 or so in the KRE in early April. We subsequently bounced, but to me, the bounce has been somewhat feeble. And if you looked in, and we'll probably talk about this on Market Call,

You're still in a downtrend, a pretty significant downtrend from November of last year in the carry that has not yet been broken to the upside. So that is clearly in place. And I think the market should be paying more attention to these small and regional banks and the small caps as well, because I do think they're telling the story. And if yields continue to go up again in the way that I think they will,

That's not a tailwind for small and regional banks. That's not a tailwind for the small cap index or any small cap companies. It becomes a significant headwind. Yeah. And I think you want to keep an eye on that. You want to keep an eye on JP Morgan that, again, like I just mentioned, has been in this base. Some of the money centers, it's kind of been dragged up. A lot of these private equity guys, this is

Blackstone, it's Apollo, it's KKR. They have not, you know, like they've had big rallies off the lows. They are so far away from the highs. And when we see article after article, whether it's the FT, whether it's Bloomberg, whether it's Wall Street Journal, I'm even seeing them from some sort of secondary sort of financial media outlets about the risk to

private credit and the like. And I say to myself, you know, there's a pocket of risk that might not be kind of incorporated in the way we think about, you know, the broad markets and kind of the, you know, I guess, you know, some of the kind of sentiment towards, you know, financial institutions and the like, because a lot of their holdings are basically not in the regulatory sort of framework that a lot of the big banks and the way they kind of lend and that sort of thing. The other thing I can't really get my arms around is just the level of

of some of these software stocks and the way they just appear to be so overbought. And you could look at the RSI's, you could look at any sort of metric. It's hard to look at a Microsoft that gapped up six or 7% after its earnings about a month ago, and then closed, you know, like in a manner that you would have thought

would be filling in the gap the next day and then investors just came for it. It's up another 12 or so percent. It basically looks like the way Meta did in late December into January. We're just notching these little gains every day. I think Meta had like 22 consecutive days that were higher. And then we know what happened into February. You know, at some point, Microsoft's valuation, at some point, Microsoft's opportunity as it relates to

You know, their ability to kind of monetize the sort of open AI technology across, you know, their suites of services. And then also Azure, which saw declining growth in the prior three quarters to this last one, showed a 2% year over year increase. And that was one of the main drivers for this performance. Microsoft looks like an accident waiting to happen, in my opinion.

Just in terms of valuation alone, and we've talked about Microsoft, which has been a significant underperformer from the summer of last year, obviously until recently when it's gotten on its horse in a meaningful way. And you had a huge gap higher in terms of the stock move on the back of earnings. And Oracle, you want to throw that in the mix as well, which has had somewhat of a parabolic move as well over the last couple of weeks. It's a stock that's trading at an all-time high, right around an all-time high.

Oracle, which was reasonable on valuation, very quickly has gotten itself, I think, expensive. And I think Microsoft has been expensive for quite some time in terms of valuation. But for whatever reason right now, the market doesn't seem to be focused on that. And I

I'm not really sure necessarily why, unless they're attaching some sort of AI premium to the back of these software names that prior to this had not been there. Yeah, and the Oracle is interesting to me, and we talked about it the night that results came out on Fast Money, and the stock was trading at 5%, 6% in the aftermarket. And to me, like,

What I found most interesting about that is like, this is like a second tier cloud player behind AWS, Azure and Google Cloud. And they're sopping up a bunch of this excess demand, right? That a lot of those major hyperscalers

you know, have right now. We've been hearing about that. That's one of the reasons why CoreWeave has been able to kind of have the sorts of gains that it has because there's been a narrow way to kind of pure play, you know what I mean? Like get exposure to this sort of excess content

sort of demand situation. And Oracle has benefited from that. But make no mistake about it, this will always be a tier two player. And maybe some of these gains are coming off of a low base. But when you have a gap after earnings about 13%

the next day, closing on the highs, and then you have a follow-through the next day, nearly 8%. We are literally talking of nearly 22% in a straight line over two trading days. Now, as we record this right now, shortly after the opening on Monday, it's down 1%. That's fine. But if you look at just the RSIs and how overbought

this is, I just don't understand how this could continue to kind of make a run. Not too different than what we talked about with Microsoft. When it gapped up the day after its earnings, it was very, it wasn't near its all-time highs made basically a year ago. And so the idea that that kept on running towards those highs,

fine, that makes some sense. But on Microsoft, you're talking about a stock that is expected to grow earnings and sales for the next fiscal year that is after this quarter that we're in right now of 13% and it's trading at 32 times. That doesn't make a whole heck of a lot of sense to me. Not to me. I mean, historically expensive by its own standards, obviously expensive when compared to the broader market. But

Again, for whatever reason, market participants or better yet, market forces are not seemingly focused on that. But right before our very eyes, as much as the Friday sell-off seemed to maybe help in terms of taking some of the steam away from the overbought condition, we're right back to where we were. So things on the valuation side of the equation have not improved at all.

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Before we get out of here now, if this is a tough one for me because as we're sitting here bitcoins right around a hundred and seven thousand or so so not far off from its prior all-time high but

The question I guess you have to ask is, should Bitcoin be doing better in this environment or does this make sense? And, you know, we've seen some articles talking about the performance of Bitcoin and other people talking about maybe the lack of performance of Bitcoin. But it's sort of at an interesting crossroads here in terms of what's going on geopolitically, what's going on with central banks and what's going on with its price performance.

Yeah, I think, you know, some of the kind of Trump family, you know, participation in the space and I think some of the expected deregulation in the space, you know, I think a lot of that is probably in the price of Bitcoin. If you believe, you know, that the two things that I just mentioned are likely to kind of keep increasing.

a tailwind right to the crypto trade. You know, the one thing I would just say is like, watch some of these meme coins because those have played a really important part of sentiment in the crypto trade over, let's say, the last ten years or so, going back to 17 and then 2020 and 2021. And when you see the sort of free for all that I think we're seeing right now

in meme coins that actually have no value. And you could equate this to NFTs, right, in 20 and 2021. It's kind of hard. There's no way to really short these things. If you have a brain on yourself, you would not look to do that. But it also speaks to a level of speculation that probably makes you think twice about participating in the rally from here on out. And I guess when you juxtapose

Bitcoin over the last few trading days, and obviously it trades 24-7 relative to, let's say, gold. You know, gold closed on Friday very near an all-time high. It looks like it's been basing on the last year and a half. You know what we think about digital gold. For me, you know, I think ultimately it's not particularly useful if you do have some sort of breakdown in society. I mean, one of the things why gold has been around for thousands

thousands of years as a sort of inflation hedge, but also as that kind of disaster hedge is because it's physical. You know what I mean? Like you could trade off of it. If you have your digital gold in a thumbnail and you need, you know, guns and water and all that sort of stuff in a breakdown of like society, that thumbnail is not going to be particularly useful to you. I know that sounds kind of silly and sci-fi is sort of stuff, but I think that does work

a little bit into the psyche it is purely in my opinion speculation on a whole host of different things might it go from you know 107,000 to 214,000 in the next year or so I mean it could but

But to me, I mean, you better believe in the idea of a store of value and is a disaster or inflation hedge or there's no reason to buy this on speculation because you could kind of wake up one day and see this thing back at 70,000 or so where it was in April. But, Guy, I wonder one thing here, that dollar weakness that we talked about, obviously crude is not trading off of that. You usually see that sort of inverse relationship there.

um gold it's kind of helped it kind of hang in there i'm surprised that gold by the way doesn't trade a little bit better sooner or later i would expect it to establish a new range over the base that it's been in this kind of 3400 level but to me i'd rather be owning gold here than i would bitcoin for the reasons that people buy gold yeah i agree with that and i think we've made that pretty clear and you know i'll take

somewhat the other side in terms of gold, down maybe three quarters of 1% today. But it could be worse given seemingly the fund flows back into the broader market as we're sitting here right now. The Dow Jones, the S&P, the NASDAQ have all pretty much recouped

what it lost on Friday. So seemingly through the lens of the market, maybe outside crude being a little still extended, despite the sell-off, nothing seemingly has happened in the world, which I continue to find fascinating, but you know, we'll see as again, you said it short week this week, there is fed speak. We'll see if it means anything. Uh,

No meaningful earnings, but only a market that is seemingly, again, trading evaluations that don't make a lot of sense. We're looking at overbought conditions to the extent we haven't seen other than the oversold conditions to the other side of the equation that we saw in early April. So-

Strap in, people, because I think this week will be interesting. Well, yeah, and then headlines like this that are just breaking here. Iran is currently signaling it wants to end hostilities and restart nuclear talks, sending messages to Israel and the U.S. via intermediaries. I mean, a headline...

like that just kind of, you know, is a foregone conclusion, in my opinion, for new highs in the S&P 500. And I'm not saying it happens today, tomorrow, that sort of thing. But we're not far off of it. If you have this sort of activity that's gone on over the last few trading days or the last week or so, and then you get the one, you know, Iran in particular, that has

really been neutered, if you think about it, over the last year or so as it relates to what's going on in Gaza and what's going on with Hezbollah. And they went right for the head, if you think about it, which was directly to Iran. You have neutralized one of the powers that we have obviously been

most, I wouldn't say afraid of, but one of the most volatile sort of ones as it relates to the proxies in the Middle East. Don't forget Iraq. They have a lot of influence there. So this sort of headline is a sort of thing where, you know, you say to yourself, there's kind of very little

that war can do right now, because over the last two and a half years or so with the war in Ukraine, it hasn't really been any sort of impediment towards equities. Yeah, 2022, we had a bad year. It doesn't have any, you know, I don't think that had anything to do with it. So that headline to me is one of the ones that I think, you know, kind of gets us back to the prior highs. We'll try to stay on top of everything, Dan Nathan. As I said, busy week here at Risk Reversal, and we'll talk to you folks later. Thanks.