Authored by Peter Tchir via Academy Securities,

While the fighting continues between Iran and Israel, the market is pricing in a positive outcome in the Middle East. Casualties continue to mount as Iran and Israel continue to attack each other, but an optimistic narrative is emerging.

While anything can still happen while the fighting continues, the optimistic narrative seems plausible and is very positive.

Which brings us to the point where we need to think about further ramifications. Since China, the Chinese military and the possibility of attacking Taiwan come up in so many of our meetings, we cannot help but wonder if China has some doubt about their own military:

If you are Xi, it seems almost impossible that you aren’t at least a tiny bit worried that your own rapidly growing military is merely a paper dragon.

The fighting continues, and there are risks, but what seemed like optimistic outcomes, now seems to be the most plausible outcomes.

At this rate, the FOMC meeting might be important, and we continue to expect the market to be surprised by a shift to dovishness from this Fed (as described in more detail in Sunday’s T-Report, linked above).

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