Things are lining up in favor of the market bulls. How to proceed from here
Stock market bulls are eating well to kick off a new week of trading. Oil is nosediving Monday on news of a memorandum of understanding to end the U.S.-Iran war and reopen the vital Strait of Hormuz. That’s improving the inflation outlook and sending bond yields lower — just in time for Federal Reserve Chairman Kevin Warsh ‘s first policy meeting leading the central bank this week. Plus, SpaceX’s massive initial public offering went well, soothing concerns about a deluge of new stock supply pulling down the whole market. The ripple effects could be setting us up for a very nice back half to the year — provided Hormuz officially reopens to oil exports and stays open. Monday’s across-the-board stock rally, led by the Nasdaq up 3%, is being driven by optimism that will happen. We’ll need to see the follow-through eventually. For now, this landscape Monday is exactly why we’ve argued that leaving the market — despite all the doom and gloom we hear on a daily basis — is simply too risky . If the U.S and Iran ink a durable peace agreement, it’s hard not to be optimistic about the stock market. Sure, the valuation is a bit elevated, with the S & P 500 trading at about 21 times forward earnings, but if oil exports via the Strait of Hormuz are about to restart, then crude prices are set to come down. Of course, they likely won’t immediately retreat to where they were before the Feb. 28 conflict began (in the mid-to-upper $60s a barrel on WTI crude ) because restarting a critical global oil supply line takes some time. But for a market more concerned about the direction of the commodity price, given it speaks to the future path of inflation and therefore interest rates, the update is definitely positive. @CL.1 YTD mountain WTI crude’s year to date performance. It’s certainly going to make Warsh’s job a bit easier this week, when he hosts his first Federal Open Markets Committee meeting press conference on Wednesday afternoon. Lower oil prices on the back of easing geopolitical tensions should ensure he doesn’t need to sound hawkish. Instead, he has cover to stress that the Fed’s policy stance is appropriate for now and argue that lower inflation is on the way. The CME FedWatch Tool is still pricing in at least one rate hike in 2026. However, those odds will follow oil and bond yields — both of which are set up to favor the bulls. Of course, should bond yields come down and stay down — particularly on the long end of the curve (think the 10-year or longer-dated Treasuries ) — then that could help catalyze demand in the housing market. As the CEO of Lennar emphasized on the homebuilder’s Friday earnings call , interest rates are a major factor in the homebuying process due to the impact on monthly mortgage payments. However, the price at the gas pump and the cost of electricity to heat or cool the home also weigh on consumer minds when making large purchase decisions. Housing tends to punch its weight economically, so any boost here certainly bodes well for the bull market. This is why Club name Home Depot is rallying Monday. One might argue the stock’s over 1.5% advance seems relatively muted considering the potential benefits. The counter is that we’ve been fooled before on a potential rebound in the housing market, so until we see a real shift in rate expectations, it’s understandable that the Home Depot buyers aren’t out in full force. The successful SpaceX debut on Friday is the cherry on top. Most of the selling pressure to raise funds for SpaceX positions is likely behind us at this point — and while we’ve had a few rocky days in the market over the past week and a half, particularly for some hot artificial intelligence trade names, the bull market hasn’t crumbled. We’re not fully out of the woods on market risks, so we cannot simply throw all caution to the wind and buy up anything and everything. On the geopolitical side, the U.S and Iran have only agreed to extend a ceasefire for 60 days while they work on hammering out an official peace settlement. Thorny issues around Hormuz traffic and Iran’s nuclear ambitions need to be worked out. Even if oil starts flowing through Hormuz again, we should expect there to be a risk premium on the waterway. Additionally, peace in the Middle East is tied to what happens between Israel and Hezbollah in Lebanon, so in reality, an end to the war may hang on much more than just Washington and Tehran. There may also be plenty more stock supply coming to market. For starters, Alphabet’s at-the-money equity offering doesn’t commence until the third quarter, and another megacap tech company could follow in its footsteps and sell equity to fund more AI capex. And, of course, we’re still waiting to see when Anthropic and OpenAI plan to launch their IPO roadshows. Both AI startups have confidentially submitted IPO paperwork to U.S. regulators. However, given how well the market did with its first real test of major new equity supply — arguably its second considering the initial phase of the Alphabet stock sale — investors should be feeling a bit better about the market’s ability to absorb the supply, especially should the geopolitical backdrop continue to be calm and corporate fundamentals remain resilient. The setup to draw new capital into the market is present. Not only did pockets of the AI trade recently experience a quick and healthy correction, but a sustained move lower in bond yields should increase investor appetite for more beaten-down areas of the market. Beyond housing, this also includes financials dependent on a healthy consumer such as Club name Capital One , which we bought more of Monday morning, and cyclicals such as the aforementioned Home Depot and names like Boeing , DuPont and Honeywell , which are more correlated with GDP growth. Markets driven higher by broad-based participation tend to be viewed as more resilient — i.e., more legs to stand on — and therefore more appealing to investors. Another thing that improve sentiment on Wall Street: big deals being struck. We’ve got that Monday with Fox Corp. buying Roku . Bottom line For now, we have a fresh commitment from the U.S. and Iran to work toward peace, and investors have a reason to celebrate. The case for the bull market to continue has definitely strengthened, especially considering that tensions in the Middle East appeared to be worsening a week ago. That provides investors a perfect opportunity to review their holdings with a clear head. If there is an opportunity to add to a beaten down name that looks like it may have bottomed, take it. We did just that with Capital One. Don’t forget to also consider which names might be ripping on Monday’s optimism and providing an opportunity to lock in some gains. Plenty is going right for the market, but nobody ever got hurt taking a profit. (Jim Cramer’s Charitable Trust is long COF, HD, DD, HON, BA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
