DoubleLine Portfolio Manager Eric Dhall and Analyst Mark Kimbrough analyze two weeks ended April 10 of markets convulsed by the fog of war, then unleashed by a no-less nebulous ceasefire. Macro news similarly was dwarfed by events in and around the Persian Gulf.

“This is not an easy market to see through,” Eric comments. “There’s a lot of fog of war, impeding investors’ ability to discern the fair price of securities right now.” As Exhibit #1, Eric cites the dramatic dispersions in stocks (2:18). For example, he points out the selloff in the SP 500 in the wake of the outbreak of war on Feb. 28 and the ferocious rally after the ceasefire announcement.

Fixed income (6:56) likewise witnessed a selloff in rates, sending the Bloomberg U.S. Aggregate down about 1 1/2% after the bombs started dropping, but “April to date it’s up 29 basis points,” Eric says. “These competing forces on interest rates are duking it out: the short-term inflationary impulse and the longer-term inflationary impulse from the fiscal overhang because the war costs money and potentially increases deficits.” Commodities (11:24) were no exception to the split-personality markets, surging 34% from Feb. 27 but giving up about 5% in April month-to-date.

Mark Kimbrough, while warning “economic data are being dwarfed by the impact of the headlines,” covers the macro reports (15:58) for the past two weeks. These include expected war-related spikes in energy prices and a drop in the U-3 unemployment rate to 4.3%. Mark cautions that the drop in joblessness was largely due to jobseekers dropping out the labor pool.

Surveying the release of the March 18 FOMC meeting minutes, Mark sees “more support for the Fed to sit on their hands,” notwithstanding rising hopes among traders for fed funds cuts this year.

“The fog of war is the state of ignorance in which commanders find themselves … not only of their enemies, but also of their friends.” Sir Lonsdale Augustus Hale, The Fog of War (1896)

“we now see through a glass darkly” Paul of Tarsus, I Corinthians 13:12 (circa 53-55 C.E.)

Drawdowns & Rallies: Seeing through a Fog Darkly (E257)