Dow, S&P 500, Nasdaq futures turn higher as Iran reportedly calls for talks to end conflict

Yahoo Finance’s Hamza Shaban writes:

If it was contrarian and a little clever earlier this week to downplay the potential impacts of an American military campaign against Iran, that dynamic has now flipped, and is starting to flop again.

The president and top US officials have indicated the military is preparing for a widening conflict that might last weeks. And market consensus is rapidly catching up. Shrugging off geopolitical uncertainty, as Wall Street had done with conflicts past, isn’t the right model anymore, the markets are suggesting. The goal now is to reprice the Iran risk, with a much heavier hand.

That was the calculus until Tuesday afternoon, when the S&P 500 (^GSPC) had shed around 2.4%. After that reflexive tightening, the rest of the afternoon, just like the day before, saw losses pared back. The S&P 500 only closed 0.9% down.

While the level of severity continues to be repriced on an hourly basis, the verdict is coming in: This is not something to be waved away. And for good reason.

Read more here in today’s takeaway from the Morning Brief.

Bloomberg reports:

As US stocks began paring back their deepest losses on Tuesday, it looked as if traders were again starting to bet that President Donald Trump would find a way to contain the fallout from another crisis he unleashed.

But Wall Street strategists are warning against relying on a so-called Trump put when it comes to the Iran war.

… The US-Israeli attack on Iran has destabilized the Middle East and threatens to deliver a new inflationary shock to the US economy by pushing up oil prices. There’s also no clear sense of when or how it will end, raising the prospect of prolonged conflict and unforeseen consequences beyond the White House’s control.

That makes the Iran war different than Trump’s trade war, his talk of invading Greenland or his assault on the Federal Reserve’s independence, all of which unnerved investors in the US and abroad.

In each case, traders came to expect that Trump would backtrack if financial markets fell too far, a strategy that came to be known as the TACO trade, which stands for Trump Always Chickens Out — and created a buy-the-dip mentality that allowed stocks to rally back.

Read more here.

From Bloomberg:

Gold advanced, recovering some of the losses in the previous session, as dip-buyers entered a market fraught with risk on the fifth day of war in the Middle East.

Bullion climbed as much as 2%, clawing back ground after a four-day winning streak ended Tuesday. Traders are balancing gold’s risk premium against a stronger dollar, with a gauge of the US currency rallying about 1.5% this week. Bond yields advanced and surging energy prices heightened the risk of widespread inflation.

That prompted traders to scale back bets on monetary easing, while a broad selloff across equities on Tuesday forced some investors to liquidate their positions to meet margin calls elsewhere in their portfolios.

The gold market is experiencing a standard “portfolio risk-reduction move,” said Peter Kinsella, global head of forex strategy at Union Bancaire Privee, UBP SA. “It’s entirely consistent with what we have seen in previous conflicts.”

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Bloomberg reports:

Foreigners are fleeing from Asia’s hottest markets this year, as exuberance in the artificial-intelligence trade gives way to fears about an oil-driven inflation shock.

Overseas investors sold about $3.1 billion of South Korean shares this week after offloading a record $13.7 billion last month. In Taiwan, they dumped another $3.6 billion, putting the market on track for the biggest weekly outflow since late December.

The pullback has been concentrated in high-flying chipmakers that had propelled both markets to record highs until last month. In Korea, memory chip heavyweights Samsung Electronics Co. (005930.KS) and SK Hynix Inc. (000660.KS) have each fallen almost 20% this week, with the former headed for its worst two-day rout in almost five decades. Shares of Taiwan Semiconductor (2330.TW) Manufacturing Co. (2330.TW, TSM) are down nearly 7% this week.

“Crowded longs in AI and everything else were sold aggressively in the race to bring down exposures across markets as Iran situation seems to have deteriorated,” said Matthew Haupt, portfolio manager at Wilson Asset Management in Sydney. The selloff has landed heavily on AI linked stocks, he added, as questions linger over whether the sector’s big capital spending plans can ultimately generate enough profits.

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Reuters reports:

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Bloomberg reports:

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