Ever since markets started to price in the prospects of peace in the Middle East (Iran in particular), momentum sent Nasdaq (QQQ) to a record high. The Dow Jones (DJI) did not confirm the broad trend. It dipped as the QQQ ETF closed at $663.88, a new all-time high.
Cautious investors who believe that the momentum buying would fade will think that the rally is too good to be true. Mainstream media continue to echo hope for a restart of the U.S.-Iran talks. Unfortunately, Iran is reportedly placing mines in the Strait of Hormuz.
Iran’s mines would make it nearly impossible for ships to get insurance. They would need to acquire safe passage by paying Iran a toll using Chinese Yuan or cryptocurrency. That effectively ends the free passage of ships through the Strait.
Aerospace and defense firms dipped sharply since peaking in early March. As the heavy bombing of Iran started last month, traders “sold into the news.” They are pricing in the low odds of the U.S. restarting any bombing campaign. The White House is aware that the war is unpopular domestically. Using patriot missiles or other weapons might hurt their popularity further.
Watch the oil and gas stocks. WTI crude prices are holding steadily at the $91-$99 level. But a breakout in Exxon Mobil (XOM) would pressure richly valued tech stocks on the Nasdaq index.
Related Stories
