Market Reversal After Geopolitical Shock: Oil, Inflation & What’s Next

Michael Reinking, good friend of the show, kicks us off here.

He is the senior market strategist.

I love that, but also senior market strategist here at the Big Board.

Thanks for, uh, thanks for joining us.

This reaction, this reversal, we saw futures last night open at 6 o'clock.

Everyone said, uh oh, here we go.

We had the opening tape.

Some people said, uh oh, here we go, and then it's kind of a different story a few hours later.

Yeah, look, I think part of what's happened here is that, you know, markets were somewhat well prepared for, for this, you know, kind of, uh, ultimate action, right, and you had, you know, uh, you know, institutional investors pretty well hedged coming into that, right?

So I think in this day and age, right, we've seen kind of all these structured products, ball selling products, you get a very quick reaction function to kind of monetize hedges, right?

So I think that.

That was part of, you know, kind of the bid that we've, you know, kind of had, you've had, you know, some pretty elevated, um, you know, kind of concerns within the market over the last week, you know, we talked off camera about the Sarini research report and just the anxiety, you know, we call it AI anxiety at this point, um, you know, kind of, you know, around that research report, and then we also had some percolating concerns around, um, you know, kind of private credit.

And and credit markets last week, right, so, uh, you know, you came in last night, futures down around 1%, you know, we kind of quickly bounced off of that.

I think the other piece of things is that, you know, the markets have gotten desensitized to geopolitical events over the last couple of years, right?

You also have the, the idea that the US is now, you know, kind of much more, um, you know, kind of the, the.

Energy independence, right, I think is the best way to think about it, right?

And so we're not as dependent on kind of oil coming out of the Middle East, right?

So you know we're in a better position to kind of deal with these sort of geopolitical events.

What parts of the markets will you be paying closest attention to?

Is it oil, energy?

Is it something in AI to give you some sense of what the next parts of this story, the next catalysts out of the Middle East would be for investors here in the US who are paying attention.

Yeah, I mean, look, just because we bounced it, I don't think it doesn't mean that we're out of the, you know, kind of out of this period of volatility, right?

We can see this kind of play out and it really depends on, you know how things kind of evolve over the next couple of weeks, you know, kind of within, um, you kind of within the region, um, you know, pay attention to oil markets, right?

We basically saw the typical conflict playbook right in general outside of kind of the idea that that equity markets didn't really tell, um.

Trade off, you know, the other piece that was a little bit different is that we, we didn't see that bid come into Treasury markets, right?

And that's really, I think, partially because of the, uh, inflation concerns around the move higher in oil prices, the move higher in natural gas prices, you know, if you look at it, um, about 20% of the world's oil flows through the Strait of the Hormuz, uh, about a third of, uh, global LNG and a third of kind of, uh, fertilizers all kind of move through that area, right?

So potentially inflationary kind of impacts, you know, so that's kind of another thing to pay attention to.

Yes, oil benchmarks, both gap, not just moving up, both gapping up on the day.

WTI West Texas here in the US, as well as Brent crude.

Brent crude reaching its highest level since January 2025, looks to be right now at about 78.41 or so.

In terms of inflation pressures, we can't forget about the Fed.

It's not the type of day we're talking a lot about the Fed, but you can't go very far.

Without forgetting they have a job to do, yeah, yeah, and then this, you know, kind of this does put kind of inflation back on, you know, kind of on the map, but the idea that we're only seeing kind of oil prices up 6, 7%, right, if you had said that to me 10 years ago that we just bombed Iran and oil prices are only up 6 or 7%, I would have, you know, I would have laughed at you, right?

So you know it just kind of goes back to that idea, right, that markets are pretty well supplied in the in the near term.

You know, and so you have a little bit of buffer.

You had OPEC plus also kind of increased their production, saying, you know, over the weekend, you know, saying that they would kind of buffer of some of what's going on as well, right?

So we'll have to see how things kind of play out over the next couple of weeks.

Michael Reinking is both the senior market strategist and the senior Michael strategist here at the New York Stock Exchange.

Thank you for helping us better understand the enormity of a day like today.

It's great to have you here.

Thanks for having me.