Markets are currently reacting to ongoing tensions in the Middle East, particularly regarding Iran, which has led to volatility in crude oil prices and stock movements. President Trump's announcement of a largely negotiated deal with Iran initially caused crude oil prices to drop and stocks to rally. However, subsequent U.S. military actions against Iranian vessels have created uncertainty.
Historically, the correlation between crude oil prices and the volatility index (VIX) has been significant during this conflict. Currently, the VIX appears to be suggesting that equities are in a strong position, potentially leading to a decline in crude oil prices to the $80s or even $70s. This is bullish for the S&P 500, which has been trending higher.
Notably, energy stocks have outperformed technology stocks year-to-date, with energy up 32% compared to technology's 29%. Despite the ongoing conflict, the growth in the AI sector remains strong. The JETS ETF, which tracks airline stocks, is showing bullish signals as it breaks above previous highs, indicating recovery potential for the airline sector.
As the market assesses the likelihood of a reliable deal regarding the Strait of Hormuz, the performance of energy versus technology will be crucial in determining future allocations in investment portfolios