The Boys Are Back In Town
- Scott Poore
- 5 days ago
- 5 min read
More back-and-forth in the Middle East this week, but positive movement on some kind of ceasefire resolution had equities moving off lows this week. Depending upon which
asset class or sector is used, risk assets have out-paced "risk-free" assets by a margin of 4-to-1. That could mean that what was working prior to the Iran conflict is starting to work again. This week's musings are inspired by the 1976 song "The Boys Are Back In Town" by Thin Lizzy. Here is some trivia about the song:
The song, not to be confused by the song of the same title recorded by The Bus Boys and released with the movie "48 Hours", was the primary hit for Thin Lizzy. It sold more than 600,000 records (Platinum status) and reached number 12 on the Billboard charts in 1976.
The song is somewhat autobiographical and loosely related to an English gang. The members of Thin Lizzy were known as hell raisers and made this song as a means to connect their audience with their rough-and-tumble roots ("And if the boys want to fight, you better let 'em"). In addition, lead singer Phil Lynott grew up in Manchester, England and his mother ran a club called "Showbiz" where a local gang called the "Quality Street Gang" hung out and were always "dressed to kill."
When this song was released, Thin Lizzy was on their last leg. They had only 1 hit to-date and it was really only popular in Ireland. They had yet to break into the U.S. market. Their label Phonogram was ready to drop them. Originally, this song wasn't supposed to be on the "Jailbreak" album. But, when the executives at Phonogram heard the song they included it on the album. The band was playing in a club in the U.S. when their manager came in a told them the song was a hit.
This song is considered one of the 500 Greatest Songs of All Time, according to Rolling Stone.
The band's lifestyle too a tragic toll on Lynott. He died in 1986 after his body broke down from years of drug and alcohol abuse.
"Guess who just got back today
Them wild-eyed boys that had been away
Haven't changed, had much to say
But man, I still think them cats are crazy
They were askin' if you were around
How you was, where you could be found
Told them you were livin' downtown
Drivin' all the old men crazy
The boys are back in town, the boys are back in town
I said, the boys are back in town, the boys are back in town
The boys are back in town, the boys are back in town
The boys are back in town, the boys are back in town"
Here's what we've seen so far this week...
Wild-Eyed Investors Have Been Away. On Tuesday of this week, the U.S. and Iran agreed to a 2-week ceasefire in order to reach some sort of permanent ceasefire
solution and to help reopen the Strait of Hormuz. There has been much back-and-forth from U.S., Israeli, Iranian, and Lebanese representatives about what exactly constitutes the ceasefire and who exactly is included. Regardless of the "he said, she said" of geopolitics these days, what is clear is that the market is pricing in the effects of the conflict and is leveling out. In fact, the 8-month futures contracts on Crude Oil show a consistently declining expectation on the price of oil, totaling a 23% decline by year-end. This will pave the way for risk-on sentiment to return to markets.
Another element in the shift in sentiment is the decrease in volatility over the 8 trading days. Just over 1 week ago, the VIX was trading at a level of 25 and is now back down to
its historical average of 19.5. The drop in the VIX is more dramatic and expedient than the decline from tariffs last year. Again, the market seems to be pricing in the conflict and expecting smoothing sailing in the immediate future.
The Boys Are Back? The risk-on sentiment is helping investors re-allocate to equities and that is causing market breadth to dramatically improve. Similar to the April-May
period last year, the number of stocks in the S&P 500 Index moving above breadth averages is stark. At least 73% of the S&P is now priced above their respective 20-day moving average. Nearly half the S&P is trading above their 50-day moving average and more than half are above the 200-day moving average. This strong reaction mirrors the activity we saw from the index's constituents in April and May of last year when the market had bottomed.
When equity markets react in this manner, it tends to be good news for the bulls. As of Wednesday, the S&P 500 Index had been up 6 consecutive days, with a gain of more
than 6.9%. This has only happened 9 previous times since 1962. When this does happen, the S&P 500 is up 9 months later with an average return of +17.2%. The index is also up 1 year later with an average return of +19.6%. In both cases, the positivity is 100%. In each of the 9 instances a recession did not occur within the 12 month window and most of the instances did not see a recession for at least 4 years on average after the occurrence. Investors would do well to not take this kind of activity for granted.
Guess Who Just Got Back Today? Since the conflict in the Middle East began just over a month ago, we've been warning of a temporary shock to inflation. The March release
of the Consumer Price Index did not disappoint. The month-over-month increase of +0.9% caused the year-over-year number to rise from 2.4% in February to 3.3% in March. As expected, the primary culprit was the price of oil rising, which cost consumers more at the gas pump. However, this increase will likely be temporary if the ceasefire in the Middle East becomes more permanent. The Cleveland Federal Reserve is expecting a much lower number of +0.4% in April, which will cause the year-over-year number to increase again, but the rise should ease by May's release.
Consumers continue to spend and appear to have a little more in their pocket, thanks to the tax man. More tax refunds through March 27th have been processed this year
compared to the previous two years. In addition, the cumulative dollar amount is higher and the average refund is higher, meaning that discretionary income this Spring looks to have improved year-over-year. Redbook Sales continue to come in well above average, moving to +7.6% this week on a year-over-year period and higher than the 4.4% historical average. The labor market is holding up, as Continuing Jobless Claims fell below 1,800k for the first time since June of 2024. Adding some dry powder to equities isn't a bad decision here even if the ultimate lows on equities have already been reached.
Enjoy this trip down the 1970s memory lane...
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Disclosures
The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.
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