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Throughout this conflict, there has been a general alignment in markets. It has led to a sortof ‘war-on’ or ‘war-off’ trade where crude oil would rally on signs of escalation and it would mean stocks and bonds would fall, along with US dollar strength.Today is a big departure from that.WTI crude oil is up $11 to $111.13 but the S&P 500 is near flat. Treasury yields are also down around 1 basis point across the curve after earlier climbing.On the surface, it looks like different markets drawing different conclusions. The oil market is saying we’re nearing genuine shortages and that Hormuz won’t open for another month while the stock market is saying that doesn’t really matter. For what it’s worth, the FX market is generally siding with oil as the US dollar firms, though not nearly as dramatically as the oil market might suggest.For the answer to why the stock market moves still make sense, you have to look further out the oil curve. Yes, May WTI is up 11% but go to June and it slips to 7% and if you go out to the December contract, it’s up just 59-cents today to $71.78. Here is a look at the December chart:I’ve extended it back a year here because that offers some perspective. Oil has climbed from around $62 pre-conflict to $72 now. That’s notable but it’s hardly a game-changer, even in fuel-sensitive industries like airlines. That would help to explain why the JETS airline ETF is down just 1.6% today and has climbed from the open.In short, the oil market is pricing in a couple more weeks of pain but all markets continue to indicate that in a couple months this will all be a bad memory.I would feel quite a bit better about that call if there were real signs that Iran wanted to make a deal to open Hormuz but for now, we’ll have to rely on Trump’s assurances. Like I wrote yesterday, the US has many levers it can pull to get the crude flowing.
This article was written by Adam Button at investinglive.com.
💡 DMK Insight
Today’s market reaction is breaking the usual ‘war-on/off’ pattern, and here’s why that’s crucial: Typically, crude oil prices surge with conflict escalation, dragging stocks and bonds down while boosting the US dollar. However, today’s divergence suggests a potential shift in market sentiment. Traders should consider that this decoupling could indicate underlying weakness in crude demand or a stronger-than-expected economic outlook. If WTI prices don’t hold their ground, it might signal a broader risk-off sentiment that could impact equities and other commodities. Watch for key technical levels in crude; a break below recent support could trigger further sell-offs across correlated assets. Keep an eye on the daily charts for volatility spikes, as this could lead to rapid shifts in trading strategies, especially for day traders looking to capitalize on short-term movements. But here’s the flip side: if crude manages to rally despite this divergence, it could reignite inflation fears, pushing the Fed to reconsider its stance on interest rates, which would have cascading effects across the entire market landscape. So, monitor WTI closely—it’s not just about oil anymore; it’s about the broader economic narrative unfolding right now.
📮 Takeaway
Watch WTI closely; a break below key support levels could trigger broader market sell-offs, impacting stocks and bonds significantly.
