The early morning of Friday, March 27, brought a shift to the settled dynamic in the financial markets as the S&P 500 futures rallied 0.66% from the index’s latest close at 6,525 to 6,567.75 soon after the opening.
The former hedge fund manager and popular TV personality, Jim Cramer, took to X near the same time to note the oddness of the situation since he noticed that – unlike at essentially any other point in March – oil prices were rising at the same time as stock futures.
Under the circumstances, the analyst wondered if the move constituted a new paradigm but concluded it was likely just a temporary anomaly and that the S&P 500 futures would soon start getting dragged down.
Contrary to Jim Cramer’s reputation on the internet – specifically, the one claiming he is wrong so often that one is better off ‘inverting’ his recommendations – he was apparently proven correct within hours. Though the S&P 500 futures are, at press time on March 27, still up, their gains diminished from the previous 0.66% to just 0.04%.
E-mini S&P 500 futures one-day chart showing the initial rally and subsequent downturn. Source: GoogleWhy stock futures rallied at Friday open
U.S. stock futures testing the waters for a rally appear consistent both with the benchmark index’s performance on Thursday, March 26, and with the commodity markets’ turbulence.
On the one hand, the S&P 500 suffered a steep drop in its latest regular session and fell from 6,591.90 to 6,477.16. Under the circumstances, at least a moderate upward correction was to be expected as there are, as a rule of thumb, generally always investors seeking to ‘buy the dip.’
S&P 500 benchmark stock market index one-day chart. Source: GoogleThe price of Brent and WTI crude oil benchmarks also reveals why a catastrophic equity market plunge is yet to come. The American standard is changing hands, at press time, at $95: 44% above the February 27 price but 15% below the March peak.
Brent is, similarly, at $103.67, 42% higher than it was just ahead of the Iran war, but also 11% lower than it was at the March 9 high.
Brent crude oil one-month price chart. Source: TradingViewWhy oil prices remain below March peaks
Such a state of affairs can largely be attributed to either President Donald Trump being exceptionally lucky with the timing of military and diplomatic moves or burning what remains of his credibility to stabilize prices.
For example, financial markets began trading with signs of severe panic over the weekend, started on Friday, March 20, as the White House threatened it would target Iranian power plants, and as the Islamic Republic warned it would retaliate against the Gulf States and Israel in much the same way.
President Donald Trump’s threat was attached to a 48-hour ultimatum, due to expire on Monday, March 23, and, mere hours before the expiration time, the commander-in-chief came out claiming negotiations were ongoing and that he was postponing the bombardment by five days.
Is the stock market going to soar or collapse next?
While it is possible that a ceasefire is, indeed, being worked on behind the scenes and that oil prices are about to drop rapidly and that stocks will soon enjoy a staggering rally, it is worth noting that the President postponed the bombardment by another 10 days on Thursday, just as the U.S. financial markets were suffering one of their worst days in recent history.
Similarly, mere weeks earlier but under similar commodity market conditions, the President came out with the claim that the war was over and that the coalition comprised of the U.S. and Israel had already won.
At press time on March 27, it appears that investors would be safer to prepare for oil at record prices and for a further decline in the stock markets, as troop buildup in the Middle East indicates a ground operation against Iran is a strong possibility.
Should such an invasion be executed, it would constitute an escalation more likely to further disrupt the global supply chains than to alleviate the existing issues.
Featured image via Shutterstock
Source: https://finbold.com/jim-cramer-warns-oil-could-drag-u-s-stocks-lower-despite-sp-futures-rally/
