GeoMacro

Instead of a normal missive, I am sending all my clients today a very lightly edited internal email that I just shared with the whole firm. I hope that it illustrates to you some of the … “fear”… that we all share with each other behind closed doors here at BCA Research as colleagues and teammates. Hopefully you see some of it in our research as well. That “cold sweat” is a necessary part of anyone in research and strategy roles. Once we lose it, we become disconnected from our clients who are in the trenches and the frontlines.

Clients are universally asking us when we expect President Trump to activate the legendary “Trump Put.” We believe that the S&P 500 would have to correct by more than 10% to practically guarantee a put. We are open minded that it could occur before; it could also occur later. But a double-digit stock price decline will certainly be a greater motivator.

An energy price spike caused by a Middle Eastern war almost guarantees that Republicans will lose control of the House, and the chance of a Democratic Senate victory increases from 35% to 40%.

In the short term, there is plenty to be worried about in macro beyond the Middle East. The market was on thin ice before the Iran conflict. In the long term, the base case scenario remains bullish, but the war in the Middle East needs to be brief.

It is too soon to sell the rip in oil or buy the dip in stocks. Stick with risk-off trades for now.

Since our Saturday missive, there have been several developments in the ongoing conflict between Iran and the US-Israel coalition.

The fog of war is the thickest at the dawn of kinetic action. However, BCA’s GeoMacro Strategy has trade recommendations to manage and thus we send this missive despite the significant uncertainty.

The president did not announce significant new tax cuts or economic stimulus.

Trump is saving face with new tariffs but will avoid any major new tariff shock until 2027. For now, Iran risk will overshadow tariff volatility.

The “Chuck Norris Premium” is now fully in the market. Since the miraculously successful nabbing of President Nicolas Maduro on January 3, the odds of subsequent use of military against Iran increased.