đSoftware Rebound + New Trade Alert!
IPO signals end of bull market
Welcome back to MktContext where we study the US economy and time the stock market.
Current market timer: HOLD
We invested 100% of our portfolio into US equities in early April. Weâve held it through the entirety of this incredible rally of nearly 15% in two months:
Many pundits were stubbornly holding cash and sat out the majority of this rally. Bearish investor sentiment was, and continues to be, elevated even though this bull market is one of the strongest on record.
What gave us the conviction to buy at the bottom and hold to all-time highs? Understanding the context of the current market environment, as well as the daily price action and positioning of other market participants. These are critical parts of market timing.
Todayâs topics: Iran/US deal, Metaâs new business model, AI compute costs, IPO signals end of bull market, software rebound. Plus, new trade made in the portfolio!
Iran/US deal
As we predicted last week, Iran/US talks are evolving rapidly. The two parties reached a deal to extend the ceasefire by 60 days while they start formal nuclear talks. The naval blockade in Hormuz would be lifted and the Strait cleared of tolls or harassment. Iran would have to remove all naval mines within 30 days.
Hereâs whatâs up for discussion in the subsequent nuclear talks: Stop uranium enrichment and give up their stockpile of highly enriched uranium. Commit to UN inspections and never pursue a nuclear weapon again. In return, the US would gradually lift sanctions and release billions in frozen assets.
The ultimate goal is a comprehensive deal that trades Iran nuclear ambitions for resumption of global shipping. The catch is this: The deal is not yet signed by Trump. Major gaps remain â Iran wants a shorter uranium ban, and resisted giving up its stockpile.
Still, we think a deal is more likely than not because both are aligned in incentives. Both sides benefit from ceasefire (Iran for its survival, Trump for domestic politics). The hard part of finding agreement is done; now itâs just about price.
The timeline and process are largely resembling the China tariff negotiations in 2025. Once both sides realize it is mutually beneficial to cease fire, then thereâs no reason to expect subsequent flare-ups. Extensions are credible, regardless of how wide the gap. And by the time the final deal is announced, the market will have already moved past it.
There is a strong case for a sell-the-news event upon announcement of the final deal. Markets have long anticipated a deal and already priced in the reopening. Stock indices are near highs while oil prices have pulled back. Once the initial excitement fades, traders take profit. This is what causes âsell-the-newsâ events.
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Metaâs new business model
AI compute is getting expensive
IPO signals end of bull market
Software rebound continues
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