Cease-Fire — Ammo For the Market?

Gary Kaltbaum
There is lots of conjecture on what the recent cease-fire in the Middle East means for the markets. Many are saying it will be a huge help to the markets. Many are saying markets have to rally based on the cease-fire. I know it is fashionable to believe such "good news" has to send the market higher, but I just don't get it. Without a doubt, markets can get a short-term rally based on the "good news" euphoria — but then it is just back to reality.

Think about it. Has anything really changed? In my estimation (and I'm no foreign policy genius), nothing has changed. Aren't we just back to square one? For sure, for this second, we don't have to watch missiles being lobbed on a daily basis. This is great news. But it is obvious that Hezbollah has been arming themselves for years, in spite of a U.N. resolution stating that they could not. Does anyone in their right mind think that this new resolution will stop the terrorists from doing just what they have been doing all along? Have all the terrorists been put away? I don't think so. In fact, the rhetoric out of the maniacs in the Middle East is louder and more inflammatory than ever before.

Unless a cease-fire has teeth, unless the terrorists are put to bed, it is not only meaningless to the markets, but it is also meaningless to the parties involved. Unfortunately, certain areas of the Middle East have been a powder keg for as long as I can remember. I doubt this cease-fire will change the playing field much.

Markets have their own set of rules that they live by, and certainly this market is watching interest rates, oil prices and many other things like a hawk. Just look at the reactions we have seen recently, based on what the Fed says or what kind of inflation numbers have come out. I would be very careful about becoming too excited about this cease-fire when it comes to the markets. I am an optimist, but I am also a realist. If the markets go higher, it will be because of all the other things the market follows on a daily basis.

The best news right now is that the long end of the bond market is rallying sharply, which means long-term rates are coming down. This is good news for markets as the cost of capital comes down. Let's hope the Fed recognizes this and takes the foot off the pedal, or better yet, how about not just a pause, but some rate cuts as well?

Gary Kaltbaum is president of money management firm Kaltbaum & Associates. He can be heard nightly on his nationally syndicated radio show "Investors Edge" on over 50 radio stations. He is a regular on FNC's Business Block. Visit Kaltbaum's Corner on TradingMarkets.com for more.