When the world looks like it is ending equity markets bottom, and when life is great and things couldn’t possibly get any better stocks top. A case in point was the start of the Russo-Ukraine war on February 24th. Equity markets had been trading lower on the potential for war and found low that very day. Since then, as the war continued, markets have advanced (with one significant pullback - test of low).

In our February 17th market note one week before the Russian invasion of Ukraine we led with a quote by Nathan Meyer Rothschild “Buy when the cannons are firing, and sell when the trumpets are blowing.” We then recapped what the markets here in the United States had done going into Operation Desert Shield/Desert Storm. In short, markets traded down on the rumor of war from August 2nd, 1990 into January 17th, 1991 (the start of the US offensive) about a 16% decline for the S&P500. But by the end of February, the index had advanced 19.58%. So, buying when the cannons were firing worked as it had in the past.

Are we about to hear the trumpets of victory or some version of it? Would a ceasefire in Ukraine be a trumpet of victory? If so, what would the implications for a diplomatic end to this incredibly destructive war be? Would sanctions persist and if so for how long?

 It is hard to imagine a peace that would come without some form of retributive penalties on Russia, and then again, it is hard to imagine a peace that does not give some element of a win or face-saving opportunity for Putin.

At the time of this writing, the US Treasury yield curve has moved demonstrably higher over the last month (and mortgage rates have done so as well). The change in the treasury yield curve from 30 days ago goes something like this (as of this past Tuesday) the 2YR 2.35% +.92%, the 5YR 2.49% +.77%, the 10YR 2.42% +.58%, and the 30YR 2.53% +37%. And here we take note of the belly of the curve between the 5YR at 2.49% and the 10Yr at 2.40%. That is a clear inversion of 9 basis points. It is something to keep an eye on. If the 2yr and 10Yr become inverted that would be a clear sign that a recession is in the works. Stocks generally don’t do well in recessions.

As to our master cycle and the potential turns for the S&P 500 in the near term, we had looked for a turn on or about March 28th plus or minus one trading day. The market continued higher on the 29th. Further out in time we see potential cycle turns in April on the 6th. At this point, we believe a high. And then a low on the 14th. With tax payments due this year on the 18th that kind of fits. According to the indispensable Stock Trader’s Almanac, the month of April is the best month for the S&P 500 and “Exhibits strength after tax deadline recent years”.

Bigger picture the master cycle points down until late June. Selling the trumpets of victory should it occur might be a prudent move.

Trade well and stay safe.

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