The Morning Call
3/31/26
The
Market
Technical
Monday in the
charts.
Bottom
line Without a crystal ball with how the conflict with Iran develops, a
more durable bottom likely requires one of two things:
1.
A further reset in growth expectations
(earnings / dividends)
2.
Or a true washout in market structure (higher
correlation + broader oversold conditions)
The
bottom line is last week's erosion of the 'Trump Put' omnipotence
leaves stocks open to more pain and the Houthis entering the game only
complicates things (couldn't be more bullish for oil if they close the
Red Sea).
But
equities discount the future.
If you believe this is a 1–2 month disruption, it’s not
obvious to press shorts here.
You have to believe in a much
longer duration shock…US troops embedded, conflict dragging for months.
Politically that’s a hard
sell... no mandate, high cost, strong incentive to find an exit (hence the
resilience).
With
all that negative gamma, tension remains high but remember this is a
pattern we have seen before: weekends were about escalation and weekdays were
about diplomacy.
With
that in mind, we're equally concerned about the conflict spiraling as
we are that people will get caught with too many hedges heading into
Easter.
Monday in the
technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Market underpricing
the odds of a deal.
Summary: 1.) Reflexivity still
matters…with SPX here and rates elevated; financial conditions are already
tightening via the rates channel. Not at max pain, but enough that the White
House should be feeling it.
2.) Diplomatic
pathways will emerge once the US can frame this as “mission accomplished” around
nuclear targets. Reports of strikes on heavy water / uranium-related facilities
over the weekend fit that narrative "President Trump is weighing a
military operation to extract nearly 1,000 pounds of uranium from Iran,
according to U.S. officials, a complex and risky mission that would likely put
American forces inside the country for days or longer." (WSJ)
3.) You also still haven’t
heard meaningfully from China or broader ROW. That matters. A prolonged
Hormuz disruption hurts everyone, and the pressure gradient will build quickly.
Iran likely understands the difference between pressuring the US and triggering
a unified global response.
That’s why the market may be
underpricing the probability of some form of deal or de-escalation over the
next couple of weeks.
Key correlation
snaps as bond market sniffs out next stimulus.
Summary:
it appears that while the bond market is starting to price in some
(substantial) fiscal stimulus to offset the looming demand destruction shock (according
to JPM the oil shockwave will hit the US and especially California
some time around April 15), the risk of a concurrent selloff of duration (we
will have some more to say on the recent batch of surprisingly weak Treasury
auctions in a subsequent post) as gulf states liquidate some of their TSY
holdings, could put the bond market in a bind, with yields pushed higher on one
hand on rising fiscal stimulus expectations, offset by the market's
expectations of how the Fed will need to react to a sudden unanchoring of the
long end should the US bond market suffer a sudden selloff in the
long-end.
It
is unclear which way this conundrum will be resolved, although judging by
today's sharp rebound in both precious metals and crypto, the market is
certainly starting to price at least some of it.
Stock market
breadth: warning or opportunity?
https://www.advisorperspectives.com/commentaries/2026/03/30/stock-market-warning-opportunity
The single
greatest stock market predictor has never been more bearish.
Summary:
The Single Greatest Predictor works because retail investors — as represented
by the average U.S. household — are typically the last to turn bullish before a
bull market reaches its apex and a bear market begins. This nearly universal
market-cycle pattern typically unfolds this way: Professional and institutional
investors turn positive on stocks at the beginning of a bull market and
gradually unload their appreciated equities to more gullible retail investors
near the end of the uptrend. To be sure, the predictor is not a short-term
market-timing tool; its greatest explanatory power exists at the 10-year
horizon. So its current record-bearish status doesn’t necessarily imply that a
bear market is imminent. But if the future is like the past, the U.S. stock
market, after adjusting for inflation, will be lower a decade from now.
S&P forward
P/E’s.
https://econbrowser.com/archives/2026/03/sp-500-forward-p-e-ratios
To capitulate or
to have to capitulate?
https://www.zerohedge.com/the-market-ear/capitulate-or-have-capitulated-question
CTAs are short and
will rip higher on good news.
Summary: since
CTA are now extremely short, they no longer will be the marginal bears, with
little selling left in even a down tape but lots of buying ($142BN
global, $61BN US) in an up tape. Finally, with stocks closing below all the key
CTA pivot levels, the selling is pretty much exhausted, and the risk is now
that a headline can spark a huge bear trap, sending stocks sharply higher.
Before the Bell: Futures
are higher on a WSJ report that Trump is considering exiting the middle east
conflict even if the Strait of Hormuz is not reopened; but the market is
deciding whether this is a genuine intent to leave or another feint given the
previous US attacks during negotiations and that Trump has yet to adjust his
Apr 6 deadline. As of 8:00am, S&P futures are 1.1% higher, at session after
approaching correction territory yesterday. Nasdaq futures rise 1%, with
memory stocks lagging amid reports
of DRAM prices plunging as much as 30%. In premarket trading, Mag7 names
are higher as part of an ‘Everything Rally’ with bids to both Cyclicals and
Defensives. In global markets, South Korea’s Kospi index slid 4.3%, entering a
bear market as it extended its drop from a February high to 20%. SK Hynix Inc.
slumped more than 7%. Bond yields are down 3-5bp, with the 10Y yield down to
4.30% after nearly hitting 4.50% two days ago; the Dollar is also lower.
Commodities are mixed with crude/gasoline mixed (US avg price rises above
$4/gal vs. $2.98 one month ago), after fading an earlier bounce, highlighting
the paralysis created by the continually shifting White House statements.
Precious metals are rallying as base metals are mixed, and Ags are bid. The
macro data focus will be on JOLTS and Consumer Confidence.
Fundamental
Headlines
The
Economy
US
The
March Dallas Fed manufacturing index was reported at -0.2 versus estimates of
+0.7.
International
Q4 UK GDP growth
was 0.1%, in line; Q4 QoQ business investment was down 2.5% versus -2.7%.
The February
Japanese unemployment rate was 2.6% versus expectations of 2.7%; February YoY
housing starts fell 4.9% versus -4.7%; February YoY
construction orders were up 42.7% versus +3.0%; February preliminary industrial
production was down 2.1%, in line; February retail
sales were down 2.0% versus -0.9%; March YoY
CPI was 1.4% versus 1.7%; core CPI 1.7% versus 1.8%.
February
German retail sales declined 0.6% versus consensus of +0.2%; the March
unemployment rate was 6.3%, in line.
The March EU flash
CPI came in at 1.2% versus projections of 1.4%.
Other
Update on Q1 GDP nowcast.
https://www.capitalspectator.com/us-q1-gdp-may-improve-as-war-clouds-threaten-the-outlook/
Iran
What our leaders continue to misunderstand.
Summary: This is the recurring illusion of overequipped
leaders: Because they can map the battle space, they think they understand the
war. But war is never merely a technical contest. It is shaped by grievance,
sacred narrative, the memory of past humiliations and the desire for revenge.
Those are not atmospheric complications added to an otherwise technical
enterprise. They are what the war is about.
Off ramp in progress?
Fiscal
Policy
More on ‘your tax dollars’ at work.
https://www.thecentersquare.com/national/article_55046c5a-9aec-44af-9c92-aec43b793e48.html
Recession
Energy market is moving into demand
destruction mode.
Summary: The world is
short of oil due to the Third Gulf War, with the closure of the Strait of
Hormuz resulting in the immediate loss of 20 million daily barrels of crude and
refined products. Measures such as using pipelines that bypass the Strait of
Hormuz and tapping strategic reserves have offered a cushion, but the gap
between supply and demand is so wide that these defenses will eventually run out.
The market may need to resort to demand destruction, where policymakers use
emergency tools to curb energy use or sky-high prices force consumers to stop
buying, with poorer nations likely to be disproportionately affected.
Recession and real aggregate nonsupervisory payrolls.
https://bonddad.blogspot.com/2026/03/oil-shocks-and-real-aggregate.html
The
Dollar
The status of the dollar as a reserve currency.
The Financial System
Distressed debt firms
targeting private credit firms as the greatest opportunity since 2008.
https://www.ft.com/content/8c3514be-8c7b-4d13-a59a-dd8a23fb8c40?syn-25a6b1a6=1
Summary:
Private credit has become one of Wall Street’s top worries this year, as
several funds, managed by the likes of Apollo Global Management, Blackstone and
Ares, have faced billions of dollars in redemptions amid questions about their
exposure to software companies at risk of losing out to AI. “These outflows
have reached a tipping point, whereby everybody on a rational basis has to ask
for their money back,” said John Aylward, the founder of Sona Asset Management.
“You have a large amount of distress, and you have forced selling, and it’s
going to provide great opportunities that we’re already seeing.”
Investing
Three reasons why
the stock market can survive the war.
Summary: Here are three supports: recent military history, U.S. earnings and hopes for artificial
intelligence.
Thoughts from Ed
Yardini.
The
War, The Yield Curve, The Fed, Private Credit, and Gold
News on Stocks in Our Portfolios
What
I am reading today
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