Daily Commentary

MarketMinder’s View: Whether the tentative two-week ceasefire announced Tuesday evening holds or not, look longer term. Businesses and markets are nothing if not relentless at navigating barriers to commerce (see tariffs with any questions). Given the uncertainty of seaborne traffic through the Strait of Hormuz, this piece looks at other historical “chokepoints”—and how maritime disputes over them resolved. Cutting to the chase: The bottlenecks didn’t stay that way for long as motivated parties found workarounds even as countries claimed “control” over the waterways. These provide potential starting points for Iran and the US to agree on a framework both sides find acceptable (since neither country ratified the UN Conventions on the Law of the Sea), like giving potential tolls a palatable branding—should both countries pursue a diplomatic end, rather than a military one. Yet even here, the longer-term economic implications are limited. “Saudi Arabia and the United Arab Emirates managed to circumvent the chokepoint to a limited degree via their bypass pipelines. Riyadh and Abu Dhabi are almost certain to double down, expanding those emergency conduits further. Kuwait would doubtless join forces with the Saudis to build its own bypass pipeline.” The upshot? “Iran’s stranglehold over energy supplies will therefore loosen over time. Five years from now, the Persian Gulf will have far better bypass options than it does today. No matter what the US and Iran agree over the future of Hormuz, the strait’s status will change. But the waterway will never be as critical to the global economy as it was when the fighting started six weeks ago.” Capitalism finds a way, which is one reason why global stocks rose—and energy prices fell—before the ceasefire and even after it immediately began looking tenuous. When in doubt trust markets, which are several steps ahead of headlines, looking 3 to 30 months out. Of course, the breaking news everyone is glued to may swing sentiment short term, but that doesn’t confer any long-term advantage. Investors fare better weighing future fundamentals.

MarketMinder’s View: (Once again, MarketMinder is politically agnostic, never preferring one party or politician over others as political bias blinds and leads to investing mistakes. We seek only to assess elections’ likely market consequences or lack thereof.) In a non-shocking special election runoff for Marjorie Taylor Greene’s vacated US House seat in Georgia’s 14th congressional district, Republican Clay Fuller prevailed over Democrat Shawn Harris. This gives the GOP slightly more wriggle room in the chamber, with its narrow lead ticking up to 4 seats (218 – 214 – 1, after former GOP Rep. Kevin Kiley (CA) went Independent weeks ago). That isn’t likely to greatly sway legislation, which generally faces an uphill battle anyway during election years, as representatives prefer not to rob themselves of wedge issues for fundraising and campaigning by actually getting things done. While the outcome wasn’t much in doubt, coverage focused on Fuller’s margin of victory versus Greene’s. “Two years ago, Greene defeated [Harris] by a nearly 30-point margin. With 86% of [Tuesday’s] ballots counted, Harris had 42.5% of the vote and was trailing Fuller by about 15 points.” Given the relative swing, some pollsters extrapolate this to November midterm elections (when Fuller’s newly won seat will be up for grabs again), in which the president’s party usually loses ground. To the degree results here are indicative, they show Republicans unlikely to buck the trend, though there are obviously some wildcards affecting voters’ sentiment at the moment. But overall, nothing here cuts against the likelihood that midterms will deliver more gridlock, teeing up stocks’ historically strong stretch that starts late in midterm years.

MarketMinder’s View: (As always, MarketMinder is nonpartisan, favoring no party nor any politician and focusing solely on political developments’ potential market implications, if any.) Don’t count your chickens before they hatch, but Canada’s minority ruling party is clucking over a potential majority after Conservative Member of Parliament (MP) Marilyn Gladu crossed the floor to join Prime Minister Mark Carney’s Liberals, leaving it one MP short of “broader powers to pass legislation and reshape Canada in the face of a changing global order.” A majority may come soon enough: “Liberal Party candidates are favored to win two special elections next Monday in Ontario, and are neck-and-neck in a third race in Quebec.” As we wrote last month, though, that doesn’t automatically mean Ottawan gridlock is over. While traditional interparty gridlock may be less relevant, intraparty divisions likely gain prominence, especially if newly minted Liberals aren’t completely on board with the party’s left flank. Meanwhile, a thin Liberal majority—and its consequences—have been on markets’ radar now for months. This would be no shock for stocks, which move most on surprise.