As last week wore on, it felt increasingly like the market was transitioning from pricing inflation risk (from a 'brief' energy supply shock) to weighing a demand-shock-driven growth scare (from a longer lasting disruption) as bonds rallied in the face of higher oil and lower stocks (stagflation).
Last week saw three attempts at unilateral de-escalation (5-day delay, 'ceasefire' proposal, 10-day delay) met with even more supply as the apparent 'Trump Put' or 'TACO' trade is losing its power.
Simply put, as Goldman's Shreeti Kapa noted last week, the answer to everything depends on one binary variable: the duration of the war.
That in turn depends if there will be safe transit of oil vessels through the Strait of Hormuz.
Even if the strait is opened, would we be able to restore oil flows to pre-conflict levels?
What is the guarantee for safe passage?
Can any ceasefire be trusted?
For how long would that hold?
This weekend gave us no answers to those questions but did suggest, as Goldman's head of equity execution, Brian Garrett, described: the situation is fluid.
Iran says electricity facilities were attacked in Tehran
IDF says currently striking Iran targets across Tehran
Foreign ministers of regional countries seeking peace & offramp in Pakistan meeting on Sunday.
Iran destroyed US AWACS jet at Saudi Airbase
Report says Pentagon has been weeks in preparing ground operations as initial Marines arrive in region (WaPo).
Fluid indeed...
Here's how Garrett started his "weekend" prep note:
"the quotation marks around weekend are intentional...
...investors and traders have not had a break in months, with “Green Dot Sunday” turning from a one-off into a 2026 non-negotiable...
...the forthcoming three day “weekend” for US markets is almost unwelcome as the market holiday just means another news/headline session coupled with zero price discovery and zero liquidity."
The feedback from various market participants suggests that Brian hit the nail on the head - headline fatigue is real.
Here's a few things on Garrett's radar...
1/ CTAs have sold even more global equities...
They are quickly approaching max short levels … at a minimum that pressure is abating
2/ Main Street is finally noticing...
The texts from college friends and family members is showing some panic... “bg, what did you do to the market”
3/ SPX Call Skew is collapsing...
The hope for a quick rebound is diminishing... this is reflected in the cost of an OTM upside strike...
4/ SPX realized correlation remains extremely low for the size of this drawdown...
Desk continues to like sector ETFs or custom basket options for those looking to express trades in convexity
And in case you needed to hear from another 'expert', here's Iran's de factor leader offering some day-trading advice:
So, Sunday night, dots are green... and oil futures open higher with WTI testing up to $103...
Up to 3-week highs...
S&P futures are down almost 1%...
The dollar is lower (against the JPY) out of the gate and Gold is up modestly, bouncing from a lower open...
How long will this opening kneejerk hold?
Finally, we given the last words before another busy (if shortened) week to Goldman's Garrett: a silver lining?
What is good news is that prices are finally reflecting the issues at hand and the correction has at least started (h/t NDX officially -10% from the highs)... feels like we’re closer to an end than the beginning but also feels like we’re playing a game that doesn’t have “innings” in the classic sense (ie : no one can give you a timeline)... many parties need to want to de-escalate and that’s not evident (yet).
Here's the trades Garrett likes:
Continue to think receiver (or just simply lower yield) trades make sense
Long emerging market equities that benefit from higher commodity prices
Short credit (only asset yet to flinch)
SPX ratio call spreads, long the 2-3x (pitched last week, still like it and we got traction)
Long gold (this one is gaining followership)
And don't forget: buy the Monday/Tuesday...
...sell the Thursday/Friday (or Weds/Thurs this week?)
Professional subscribers can read Brian Garrett's full "Weekend Prep" note here at our new Marketdesk.ai portal