One of the catalysts behind the remarkable strength in assets over the last four months was the belief that economic growth was going to shift from deceleration to acceleration. This has manifested in stocks breaking out to new highs in a broad-based rally, cyclical stocks outperforming following months of underperformance, and interest rates starting to move higher.

Oil and commodities also followed this trend, as oil climbed 30% between October and January's high. Oil peaked on January 8 above $65 amid the peak of tensions between Iran. Since then like nearly every other growth-based indicator, it's been steadily weakening all year.

Iran Situation

Oil's recent high was during the aftermath of General Soleimani's assassination when there was considerable fear that it could lead to a full-on war between the U.S. and Iran. However, while this isn't the case, it's clear that Iran is going to retaliate in a slow and methodical way by attacking U.S. interests and allies while continuing to provide support to the U.S.' adversaries.

There have already been small-scale attacks with the most recent being Sunday's embassy attack. It's also not hard to imagine President Donald Trump retaliating during an election year. And it's also fair to conclude that Iran will be targeting U.S. and U.S. allies' energy interests in the region, as it has done in the past.

Given these risk factors, it's interesting to note that oil is down 17% since January 8. It's a very bearish development when selling overwhelms what would be a bullish catalyst in a vacuum. Two more negative developments for oil have been the lack of meaningful trade deal and faltering economic growth.

Growth Faltering

The expectation was that the "Phase 1" trade deal would be signed and that it would lead to an improvement in global trade and boost lagging export-oriented sectors. However, the reality is that the trade deal has been underwhelming, lacks enforcement mechanisms, and seems unlikely to be significant enough to change the status quo. This is clear from the weakness in agricultural commodities which should be rallying if the market believed that China was serious about fulfilling its commitments.

If the trade deal is not significant, it's unlikely to affect manufacturing's downward trend which makes the "economic growth re-accelerating" theory more unlikely. This is evident from oil, interest rates, and cyclical stocks underperforming. There's also concern that the coronavirus outbreak could negatively affect China's growth which would affect global growth and demand for oil.