After some brief volatility, investors have largely shrugged off the Iran war. I am concerned about the consequences for oil & gas, though the US will be considerably less affected than the European Union, China, and India, who rely heavily on energy from the region.
Earnings are the big story for investors right now. Companies are growing earnings by about 15% over this time last year, and those strong earnings are supporting higher prices. As I have said before, so long as companies continue to grow earnings, we should see markets move higher.
I am concerned about the breakdown of private credit, however. It has largely moved from the headlines, but there is trouble brewing in these off-market funds, and that trouble has the hallmarks of contagion. In addition, corporate layoffs have begun to reach alarming levels. There have been over 100,000 announced layoffs in technology alone!
Overall, I see storm clouds forming, but there is probably still some time before the rain drops start to fall. That said, we need to keep a close eye on the risks hiding beneath the market’s all-time highs, especially in private credit.
Chart of the Week
This week’s “chart” comes to us courtesy of Reuters, and it demonstrates the strategic challenge of the conflict around Iran. Given their long coastline, Iran can exert considerable control over the the Strait of Hormuz, through which some 20% of the world’s oil flows.
There are pipelines to move oil to a seperate port, but that capacity is very limited and it will take many years to build new pipelines. Until then, energy flows will be largely determined by the whim of the Iranian regime.
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