Short On Time... Executive Summary
Oil! Who is tired of hearing about it besides me? Everyone? Here’s an unfortunate spoiler. Sans the current regime in Iran waving a white flag, oil is going to grind higher for now. You can’t remodel a bathroom in a month and you sure can’t remodel a country in one. If the U.S. walks away now, what’s left of the bad guys will rebuild. Remember the chaos in Iraq after Saddam was gone? It took troops on the ground to transition the country, and I suspect this will be the case in Iran. I hope I’m wrong, but probably not. So, oil grinds higher and the prices at the pump do the same. Eventually, this feeds inflation if it lasts long enough. As such, don’t expect any interest rate cuts from the Fed on Wednesday. Corporate America is doing fine. Earnings are good. The market is now trading on headlines from Iran and what it thinks oil will do. The midterm elections are coming up fast and if gas prices are high, you know what that means. So, the Trump administration will be doing everything they can to expedite Iran and oil back to lower prices. Time will tell and history will be the judge.
The Week On Wall Street
Stocks logged a third-straight down week as investors digested the latest news out of the Middle East, navigated more volatility, and mulled the latest economic data. The Standard & Poor’s 500 Index declined 1.60 percent, while the Nasdaq Composite Index lost 1.26 percent. The Dow Jones Industrial Average fell 1.99 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, slid 2.28 percent.
Middle East
Markets got a volatile start to the week, with stocks falling and oil prices rising as commercial maritime traffic heading out of the Persian Gulf through the Strait of Hormuz remained at a virtual standstill. But stocks rebounded late in the day after the White House said the conflict may end sooner than expected. Stocks dropped at Tuesday’s opening bell but mostly recovered after word spread that a group of countries, including the U.S., were considering a coordinated release of strategic oil reserves to counter supply disruptions. Markets generally went sideways midweek as news that the Consumer Price Index (CPI) held steady last month buoyed spirits. As the week progressed, all three major averages fell, and oil prices hit all-time closing highs. Investors grew increasingly concerned over the impact of oil supply disruptions on the broader global economy, with the Strait of Hormuz remaining a concern. Bond yields rose as investors believed a prolonged conflict would keep oil prices high, increasing the chance of higher inflation. Market sentiment continued to struggle as the week wrapped up, but declines slowed despite a downward revision to Q4 gross domestic product (GDP) growth.
Stubborn Inflation
With all the updates on the Middle East conflict, it was easy to miss other news last week. Wednesday’s report that the CPI remained unchanged in February over the prior 12 months was good news. But it was the last bit of inflation data before the conflict in the Middle East began. Friday’s Personal Consumption & Expenditures Index, the Fed’s preferred inflation measure, showed that consumer prices remained sticky in January. Investors largely took this report in stride because delayed reports tend to lose their impact with time.
This Week: Key Economic Data
Monday: Industrial Production. Capacity Utilization.
Tuesday: Federal Open Market Committee (FOMC) Meeting—Day 1. Pending Home Sales. Homebuilder Confidence.
Wednesday: FOMC Meeting—Day 2. Producer Price Index (PPI). Factory Orders* (Jan.). FOMC Interest Rate Decision. Fed Chair Press Conference.
Thursday: Weekly Jobless Claims. Wholesale Inventories* (Jan.). New Home Sales* (Jan.).
Friday: Employment Cost Index (Q4).
*Indicates federal data release delayed by the government shutdown
This Week: Notable Companies Reporting Earnings
Wednesday: Micron Technology, Inc. (MU).
Thursday: FedEx Corporation (FDX).
Stay tuned...
