After four consecutive weeks of losses, stocks rebounded this past week, rallying on Wednesday and Thursday after the NASDAQ Composite closed Tuesday in correction territory (down more than 10% from previous peak). The financial markets were closed on Good Friday. We certainly don’t know if this is the bottom or not, given the nature of the conflict in Iran. However, we do believe that valuations are reasonable and have a shopping list of high conviction securities should the market fall much further. We will also reiterate what we stated last week in that “historically, it is during these periods of great uncertainty that provide the opportunity and, although not there yet, we believe we are closer to the end of this shallow correction than the beginning.”
- In our opinion, we are currently in a period of market volatility, not economic instability. However, should the war in Iran persist for another month or two or more specifically should the situation in the Strait of Hormuz not change, which is NOT our base case, expect economic instability.
- Treasury Yields turned up Friday after the Labor Department released stronger than anticipated payroll data for the month of March. (See below.) Given the recent spike in the price of oil and the likelihood that, regardless of how the military action in the Middle East is settled, we believe that, absent an unforeseen economic shock, the Fed will have a difficult time reducing rates by more than one time during 2026, if at all. This should keep intermediate-term bonds range bound. At the present. We are at the upper boundaries of the trading range.
- The economy remains resilient. As is evident in the economic data below, the U.S. economy, a net exporter of energy, remains resilient. This includes the all-important labor market which is the foundation for the retail sector. However, as in the past, most of the spending is being done by the middle- to upper income consumers. Those below these levels remain challenged. That said, should the war in Iran persist for another quarter or so, specifically should the situation in the Strait of Hormuz not change, which is NOT our base case, expect economic instability.
Economic Briefs…”
- Non-Farm Payrolls (approximately 80% of the U.S. workforce) reversed course in March, rising by 178,000, after declining by a revised 133,000 (orig. -92,000) in February. December was revised up by 34,000 to 160,000. This brings the net three-month average to 68,000, the six-month average to 9,000 and the y/y average to 26,000. Economists continue to consider the impact of a lack of immigration, advances in technology as well as the current economic environment. Private Sector companies added 196,000 jobs while the Public Sector lost 18000. Employment by the Federal Government has fallen by 355,000 since peaking in October 2024. Once again, payroll data was influenced by health care (76,000), social services (14,000), construction (26,000) and financial activities (-15,000). The Unemployment Rate ticked down to 4.3% during March from 4.4% in February. The Unemployment Rate had gotten as low as 3.4% in April 2023. According to the household survey, employment fell by 64,000 as the labor force shrank by 396,000. The Labor Force Participation Rate fell to 61.9% from 62.0%, its lowest level since November 2021. Average Hourly Earnings rose 0.24% or $0.09 to $37.38 during March from $37.29 one month prior and by $1.27 or 3.52% from $36.11 y/y. Average Weekly Earnings fell 0.05% or $0.65 to $1,278.40 during March from $1,279.05 during February. Average Weekly Earnings over the past year have risen by $43.44 or 3.52% from $1,234.96 as fell to 25.3 weeks in March from 25.7 weeks in February, above the 23.6 weeks (SAAR) recorded one year ago. The Median Duration of Unemployment edged up to 11.5 weeks during March from 11.1 weeks in February, above 10.9 weeks (SAAR) one year ago. The number of Long-Term Unemployed (27 weeks or longer) fell 78,000 or 4.11% to 1,821,000 in March from 1,899,000 in February, above the level of 1,599,000 (SAAR) one year ago. (Source, U.S. Department of Labor)
- Retail Sales rose 0.6% in February (3.7% y/y), after sliding 0.1% in January. Spending on Motor Vehicle & Parts rose 1.2% during February (4.0% y/y) after sliding 0.7% in January. Retail Sales Excluding Motor Vehicles & Parts rose 0.5% during February (3.6% y/y), after remaining unchanged during January. Two key components of this report, Sales at Gasoline Stations rose 0.9% during February (-0.4% y/y) after falling 1.9% in January as Restaurant and Drinking Place Sales edged 0.4% higher during February (5.2% y/y) after falling 0.2% in January. Also of note was the 0.4% rise in sales of building materials (3.8% y/y) as well as the 2.0% rebound in clothing & accessory store sales (7.2% y/y). (Source, U.S. Census Bureau)
- The Conference Board’s Consumer Confidence Index rose to 91.8 (-12.3% y/y) during March from 91.0 in February. The present situation index rose to 123.3 in March from 119.9 (-11.7% y/y) while the expectations component fell by 4.6 points to 70.9 (-13.0% y/y) from 75.5 during February. Those surveyed saying that jobs are “hard to get” rose to 21.5% of respondents during March from 21.0% in February while those claiming that jobs were “plentiful” rose to 27.3% of respondents from 26.7% during those same months.
- The Institute for Supply Management’s composite index of manufacturing sector activity edged up to 52.7 during March from 52.4 in February. Generally, a reading above 50% indicates that the manufacturing economy is expanding, below indicates one in contraction. Of note were the changes in New Orders (53.5% v. 55.8%), Production (55.1% v. 53.5%), Supplier Deliveries (inverse, higher number indicates slower delivery times) (58.9% v. 55.1%), Inventories (47.1% v. 48.8%) and Employment (48.7% v. 48.8%). The Prices Paid Component surged to 78.3 during March from 70.5 in February. (Source, Institute for Supply Management)
Economic Reports scheduled to be released this week, include the following – on Tuesday, February Orders for Durable Goods and February Consumer Credit; on Thursday, Fourth Quarter Gross Domestic Product, February Personal Income and Spending, February Wholesale Inventories and Initial Claims for Unemployment Benefits; and, on Friday March Retail Inflation as measured by the Consumer Price Index (CPI), February Factory Orders and the Preliminary Report on April Consumer Sentiment from the University of Michigan.
Several potentially market moving companies are scheduled to report earnings, to include Levi Strauss (LEVI), Greenbrier (GBX), Price Smart (PSMT), Delta Air Lines (DAL), Constellation Brands (STZ), Progressive (PGR) and Simulations Plus (SLP).
