Equities Higher For First Time In Weeks

Equities rebounded and finished the week positive for the first time in 6 weeks. Considerable buying of equities by pension funds due to scheduled rebalancing

helped markets move higher despite mixed messages from the White House. Bombings of Iran and a downed U.S. F-15E sent the pilot and crew member on the run. Their successful rescue over the weekend led to comments by the President that conflict timeline should be "days not weeks." However, if we look at the over-reaction by investors so far in the context of previous wars/conflict, whether the remainder of the timeline is days or weeks it would pale in comparison to historical U.S. involvement in conflicts overseas. Unless the current conflict spirals out of control and becomes years instead of months, investors should take a breath.

So far, the current pullback is benign in contraction and more spread out in terms of time frame. Most bear markets begin with a quick 5% drawdown, that typically leads to

a full blown panic. That has not been the case this year. As of the end of March, the S&P 500 Index was down 9.1%, which took 35 days to achieve. In prior corrections that led to bear markets, the drop was 3.8x worse and the time it took to get there was twice as fast, on average. So, again, it's a little early to hit the panic button until more information about the conflict arises or markets plummet.

Equity markets bounced on the final day of March by more than 2% and by almost another 1% on the first day of April. The move was significant enough for the Tick Index

on the NYSE to spike to 2,329 stocks rising at the same time, which was an all-time high. The previous record was 2,200 set in April of last year when markets began to recover off the tariff-driven lows. Furthermore, the S&P saw more than 75% of its components ending April 1st higher. In other words, the U.S. stock market saw its most aggressive buying on a single day in years. Headlines regarding the Iranian conflict could force equities to test lows, but discounting the spike higher this week is not a wise decision.

It's possible that markets are starting to price in the effects of the Iranian conflict. While that is good for the long-term, it doesn't mean the short-term won't produce more

volatility on a day-to-day basis. S&P companies just quietly turned in a strong batch of Q4 corporate earnings. Companies in the S&P were up 14% in earnings growth, which is the 5th straight quarter of double-digit growth. The good news is that we typically see strong returns moving forward when markets make the kind of move made last week. After a 2.5% gain, like the one seen Tuesday, the S&P 500 Index is higher 6 months later. In addition, tanker traffic is picking up in the Strait of Hormuz. While short-term volatility isn't over yet, we could be seeing the light at the end of the tunnel, with perhaps better days ahead.

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