As we suspected, President Trump\u2019s televised interview on Tuesday morning was largely \u201cmore of the same,\u201c but there were a few notable items that caught our attention in the process.\u00a0<\/p>\n
Trump did not back down from his comment that he will not extend the ceasefire when it expires on Wednesday, and that while he doesn\u2019t want to do it, he will bomb power plants and bridges in Iran if a \u201cgreat deal\u201d isn\u2019t reached in time. To us ,this appears to be Trump once again \u201cupping the ante\u201d ahead of peace talks, a strategy we\u2019ve seen before from the president.<\/p>\n
During the interview, Trump indicated that he would be disappointed if nominated Federal Reserve Chair Kevin Warsh did not cut rates \u201cimmediately,\u201d but the president quickly pivoted back to the subject of Iran and why the war needed to be fought.<\/p>\n
While that could be Trump potentially giving Warsh a pass on rate cuts \u2014 which would be hard to do, given the step up in published inflation data as well as oil and petroleum prices \u2014 the president also raised a question about Warsh\u2019s confirmation process. <\/p>\n
Trump was asked point-blank if he would consider an off-ramp for the Department of Justice investigation into Fed Chair Jerome Powell and the Federal Reserve regarding construction cost overruns. Trump indicated that he would not back down and drop the probe, and this could set up a showdown with Senator Thom Tillis of North Carolina, who has promised to hold up Warsh\u2019s confirmation if the DoJ doesn\u2019t drop its criminal investigation of the Fed and Powell. <\/p>\n
When asked about companies seeking tariff refunds, Trump indicated that he is keeping score on which companies are and which ones aren\u2019t, and he\u2019s going to remember. <\/p>\n
Trump also indicated that the administration is likely to hammer out a deal with Anthropic, which was recently named a \u201csupply chain risk.\u201d The president also indicated that the administration is working with OpenAI, a positive comment as that company moves toward its eventual IPO. <\/p>\n
Netting it all out, with the Nasdaq Composite still in over bought territory based on its relative strength index level and the S&P 500 not too far behind, the risk we see is that if no deal between the U.S. and Iran is achieved or if the market is underwhelmed by one that is struck, profit taking following the market\u2019s significant bounce back month to date could ensue. <\/p>\n
When the market has been in similar settings in the past, expectations have been high, and hopium has been a driving factor. As we\u2019ve seen, it doesn\u2019t take much to let some air out of the market balloon. That risk is one reason why we\u2019re keeping the Portfolio\u2019s market-hedging position intact. Should a good deal between the U.S. and Iran be reached, we\u2019ll consider trimming back the Portfolio\u2019s exposure to those strategies.\u00a0<\/p>\n