Why So Bullish? Markets Cling to Iran Hopes

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Welcome to Prof G Markets. I'm Ed Elson. It is April 2nd. Let's check in on yesterday's market vitals. The major indices extended their rally for a second day in a row. Brent crude prices briefly slipped below $100 per barrel. Treasury yields were flat on the day and the dollar continued its slide. Okay. What's happening? Stocks are still rallying on hopes that war with Iran is winding down. President Trump said the president of Iran has asked for a ceasefire, but the US will only consider when the Strait of Hormuz is, quote, free, open and clear. That comes a day after Trump told aides he'd be open to ending the war, even if the Strait of Hormuz remains closed. The S&P 500 surged nearly 3% and the NASDAQ was up nearly 4% on Tuesday. And all three major indices continued their rise yesterday. So here to discuss the markets movement, we're speaking with John Mowrey, chief investment officer, portfolio manager, and equity strategist at NFJ Investment Group. So John, we keep on getting all of these announcements. And to be clear, we are recording this before Trump makes his 9 p.m. announcement. He said he's going to deliver this address to the nation. When people listen to this, he'll have made that address. Unfortunately, we cannot analyze it. We're recording it before. However, markets appear to be quite optimistic right now. They are optimistic on Tuesday, optimistic on Wednesday as well. What do you make of the markets reaction to what might be an end to this war? Maybe not. What do you think?

**John Mowrey** (3:26)
So I think that when you look at the multiple compression that has occurred off of what has gone on in the Middle East, you have to be somewhat optimistic. You know, technology stocks, which make up the largest sector in the S&P 500, they're now trading below 20 times earnings with accelerating earnings growth. That's actually the lowest multiple since back in 22 You've now gotten past the Liberation Day multiple. So I think you have to be optimistic as a long-term equity investor here. You know, what I would say about what's going on in the oil markets, I mean, obviously, the oil sector was extremely strong in the first quarter. I think it was the second best quarter since 1989 And energy stocks had two distinct advantages going into the year. The first is that they were historically cheap, and then you had the exogenous shock that occurred with the oil spike. So I think that when you look at what's going on, you definitely have to be optimistic as you look at more cyclical areas. Technology, financials have really been beaten up. And even though the broader markets are only down 6%, 7%, the multiple has compressed far below what I think investors might expect given kind of a more small pullback on a total return basis.

**Ed Elson** (4:48)
Yeah, it's interesting you mentioned the tech sector there, because yes, those multiples have been compressed. A lot of the biggest names in tech have just gotten crushed this quarter, like big, big drawdowns. And I guess what's hard to understand is how much of that even has to do with what's happening in the Middle East. I mean, on Monday, as an example, we saw there was a little bit of a rally, and it coincided with some maybe peace talks or at least some announcements that made it seem like maybe the war was coming to an end.