Last Week
The stock market snapped its five-week losing streak on Wall Street, as equities traded higher during the holiday-shortened week, fueled by a stronger-than-expected March jobs report and some optimism that President Trump is moving towards ending the war with Iran. While the former seems rational, the latter seems somewhat questionable. For the week, the Nasdaq Composite surged 4.4%, while the S&P 500 and the Russell 2000 both jumped 3.3%. Advancing issues tripled the number of declining issues, with only the Oil & Gas and Telecommunications sectors finishing in the red. Gold rebounded 3.5% as the Dollar remained steady and the yield on the 10-year Treasury dropped 13 basis points to 4.31%.
The jobs report highlighted the resilience of the U.S. economy as nonfarm payrolls rose by 178K in March, sharply exceeding the 51K consensus estimate and rebounding from a revised 133K decline in the prior month, while the unemployment rate edged down to 4.3% from 4.4%. The strength in employment eases stagflation concerns, thus allowing the Fed to focus on inflationary pressures. It would also make near-term rate cuts less likely.
Turning to the end-of-war optimism, we are not sure what investors are focusing on. Oil futures surged to an intraday peak of $113.97 per barrel on Thursday, following President Trump’s national address on Wednesday night, which certainly did not sound like an olive branch. The U.S. is deploying an increasing number of assets to the Middle East, and Iran seems to be firmly in control of the Strait of Hormuz and continues to maintain a significant arsenal of missiles and drones. The idea of a regime change in Iran or capturing its enriched uranium seem aspirational. The consensus on Wall Street is that sometime in the next few months, we will declare “mission accomplished” and de-escalate our involvement. Iran will have been significantly weakened, and gas prices will begin to move lower, reducing inflationary pressures. Despite the tremendous uncertainty, we advise investors to stick with their long-term target allocations. In the words of George Harrison:
“Now the darkness only stays at night time
In the morning, it will fade away
Daylight is good
At arriving at the right time
It’s not always gonna be this grey”
This crisis too will pass, just a matter of when.
The crisis on the Chicago Sports Scene will also ultimately pass. A bright spot was the Fighting Illini, who reached the Final Four in the NCAA basketball tournament before falling to UConn on Saturday night.
We do note that the Bulls have started to lose games by large margins, giving up an average of close to 140 points per game over the last few weeks. Nevertheless, there are still eight NBA teams with worse records, leaving us without much of a chance of a high lottery pick in the upcoming NBA draft.
This Week
Developments in the war will remain the primary driver of action in the financial markets. President Trump has established a Tuesday night deadline for Iran to reopen the Strait of Hormuz, which will create a lot of anxiety as that deadline approaches.
As the aforementioned deadline approaches, the price of oil will continue to capture traders’ attention. OPEC+ met Sunday and decided to a primarily symbolic hike in output amid the surge in prices and the closure of the Strait of Hormuz.
Inflation data will also be in focus, with the February PCE on Thursday and the March CPI on Friday. Whereas the February reading is expected to be unchanged from January, the March number is forecasted to show a significant jump.
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