Is the Iran Impasse a Bullish Case for Brazil?
POSTED BY: VANCE HOWARD
The markets moved higher last week on hopes of a ceasefire in Iran, and just when you thought things might be starting to calm down, news that no deal was struck came out of the meetings with Vice President Vance and the Iranians. On Saturday, Vice President JD Vance and the U.S. delegation met face-to-face with their Iranian counterparts in Islamabad, Pakistan, but failed to reach an accord after 21 hours.
Vance said in a brief appearance before leaving Pakistan, “They have chosen not to accept our terms.” He said Iran refused to commit to “not seek a nuclear weapon.” The last part, that they would not commit to NOT seeking a nuclear weapon, is disturbing to say the least. It lets you know exactly what their intentions are.
President Donald Trump said Sunday that the U.S. Navy would “blockade” the Strait of Hormuz. The U.S. military is set to halt ships traveling to and from Iranian ports starting Monday morning.
We think that the markets have bottomed, in all probability, but the extreme volatility has not. The trend is trying very hard to firm up and turn back to an uptrend, which could happen any day now. However, as you can see from the futures market this morning, news-driven swings are the current norm.
Look at the SPDR Convertible Bonds ETF (CWB), which broke out last week, along with MaxLinear, Inc. (MXL) and TTM Technologies, Inc. (TTMI). We think that Brazil, via the iShares MSCI Brazil ETF (EWZ), is also looking very interesting – with significantly higher upside if a commodity bull persists. While oil has driven recent gains, Brazil’s equity performance is supported by broad commodity exposure including iron ore, agriculture, and metals.
We believe valuations remain compelling, with Brazil ranking near the top of the ACWI scorecard. Key risks include a sharp oil price decline, ineffective or stalled easing, and weaker than expected demand from China.
Breadth has improved but is far from breadth thrust levels that have given all-clear signals in the past.
As expected, a double-digit surge in energy prices drove up inflation in March, the first month of the Iran war. The Consumer Price Index (CPI) jumped 0.9% from the prior month, the most since June 2022. Over three-quarters of price growth was attributed to a 10.9% rise in the energy CPI, the most since September 2005, surpassing the increase in the wake of the Russian invasion of Ukraine.
Gasoline prices jumped 21.2%, a record since data started in 1967. Fuel oil soared 30.7%, the most since February 2000. Electricity prices also continued to rise. The only offset was a decline in natural gas prices.
The HCM-BuyLine® is a proprietary indicator of Howard Capital Management, Inc. (HCM), a registered investment adviser. There can be no guarantee that the HCM-BuyLine® indicator will perform as anticipated. Its use does not guarantee outperformance of strategies not employing such programs and does not insulate an investor from the risk of loss. The Pilot’s Advisor, LLC is not affiliated with Howard Capital Management, Inc.
