The global equity rally continues, and the reason is not complicated. The S&P is up about 13% from its March 30 low, the Nasdaq is up 15 to 16%, and the price of oil has come down from 120 to almost 80. My view is that oil works back toward the mid 60s over the next week or two. Nearly everything else in this market is downstream of that one number.
The mechanism is Iranian oil exports. Restricting them has stopped the cash that was flowing into the country, and that is what the oil market is responding to. On the straits, I think they are open. It is not entirely clear, but oil is trading off that eventuality, which tells you what people with money at risk actually believe. As an investor, I will know the straits are clear when I see the first cruise ship go through the Strait of Hormuz. I suspect that happens in the next week or so. That is the confirmation I am waiting on, and it is worth more than any statement.
The leadership inside the index tells the same story. Cruise lines are the best performing industry in the S&P today, with airlines right behind, both consumer discretionary. Industrials led by the big cap names continue to pace the gains. Gold is fairly stable below 5,000. Bitcoin is up 30% from the March 30 low, which makes it the best performing asset in the world; it got down to about 60 three weeks ago and sits in the high 70s now. My view is that it works back toward 85. I read Bitcoin mainly as a gauge of risk-on psychology, and right now that gauge has a bid, as does just about everything else.
Underneath the geopolitics, the US economy continues to do well and earnings season is unfolding very favorably. FactSet has the S&P on track for 13.2% earnings growth, with the technology sector expected to grow earnings more than 25% in the first quarter. Those are strong numbers. Consumer discretionary, industrials and big cap technology are leading, and I expect that to continue as the peace process unfolds.
I took a fair amount of criticism for being optimistic through this crisis, and some of that is fair. Plenty of people are closer to it than I am. Nothing in a market note speaks to what this has cost the people living through it, and I would not pretend otherwise. My job is narrower. It is to read what the oil curve, the dollar and the leadership groups are pricing, and for weeks now they have been pricing a resolution. I could be wrong on the timing. The direction has been consistent.
