Since the bombardment of Iran began two weeks ago, the S&P 500 is down ~3%. Not a huge move by any stretch. The problem is that stresses are building and technicals are breaking down. Like a Pavlovian response, dips have been reliably bought, especially at the key technical levels. Until now. The Friday before the military action began the S&P closed below its 50d moving average. Subsequent attempts to regain that level last week failed. Then the 100d ma failed this week. Resiliency in the first half of the week was stressed on Thursday, and the S&P closed below the range (6700-7000) it’s been in since late last year. The steady decline has now put the 200d moving average in play with Friday’s close just above it (6632 vs 6604). We haven’t traded below that line since May, when we were V-recovering from the Tariff selloff.

The price action late in the day on Monday was a telling sign. Equites jumped and crude fell after President Trump said “I think the war is very complete, pretty much”. The market is balancing the likelihood of a rally on deescalation against a more significant decline should hostilities continue and oil remain highly elevated for an unexpectedly long time.

Energy was the best sector this week for obvious reasons, though the strength was modest. The defensive Utilities sector was also up, despite the significant backup in yields as it played the defensive role pretty well. Consumer Staples, another defensive sector, was only slightly lower. The S&P fell 0.6% on Friday and faded into the Close with only a slight bounce off the lows at the very end. With hesitancy to hold positions over the weekend, Utilities, Staples and Real Estate finished in the green (as well as Energy). On a positive note, Financials were flat on Friday, owing to the beaten up credit group seeing a bounce. Overall though the market has Defensives leading, cyclicals sold and oil and yields higher, which is starting to rhyme with "stagflation".

For next week, beyond Iranian developments, central banks will be front and center. Not only the Fed, but the ECB, UK, Japan and Australia will hold rate meetings. The US and China will meet over the weekend for trade talks, paving the way for President Trump's visit to China at the end of the month. After taking a back seat to the Iran situation, AI will see more focus again as Nvidia holds its highly-anticipated GTC conference. Docusign, Micron, Alibaba and Accenture earnings will also be important updates for the space, and we'll also see some more retailers report. The World Baseball Classic continues, and look what we have- another USA vs Canada matchup, tonight. Enjoy your weekend. Play Ball!