Pretiorates’ Thoughts 120 – The roof and beams are creaking

Core Viewpoint - The US stock market, despite its impressive performance over the past three years, is showing signs of underlying weakness, with increasing investor caution and a potential shift in sentiment [4][9]. Market Reactions - The stock market reacted calmly to the SCOTUS ruling regarding import tariffs, but this calm was short-lived as expectations for a sophisticated response from Washington were unmet [3]. - The activation of the base tariff by Trump under Section 122 of the Trade Act of 1974 was politically clever but did not significantly impact financial markets, which had already adjusted to the previous illegal tariffs [2]. Investor Behavior - There has been a growing willingness among investors to take short positions in S&P 500 futures, indicating a shift in investor sentiment and a decrease in complacency [4]. - Smart investors have not yet taken a negative position, as there has been no significant distribution in the S&P 500 recently [5]. Index Performance - The Nasdaq Index is showing a significantly weaker performance, with a notable reduction in positions, particularly affecting major tech stocks and software companies, which have lost over 30% since the end of 2025 [7]. - The S&P 500 has underperformed the global stock index since November 2025, suggesting a weakening trend despite its apparent stability [8]. Economic Factors - Recent economic data does not support bullish sentiment, contributing to a lack of momentum in the market [10]. - The geopolitical situation, particularly regarding Iran, is creating additional uncertainty, which could impact market stability [12]. Oil and Gas Market - Approximately 20% of global oil production and LNG gas market passes through the Strait of Hormuz, with potential geopolitical risks not yet fully priced into the oil market [13][14]. - The calm in the oil market may be misleading, as any military escalation could disrupt shipping routes, leading to significant market reactions [14].