Stocks remain under pressure amidst geopolitical concerns causing elevated energy prices and sinking consumer sentiment. However, at this time sentiment has yet to bleed negatively into the economy and if the conflict in Iran can begin to show some signs of easing, both the stock and bond markets should find some footing.
As noted last week (obviously prematurely), “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.
· We queried Gemini for “10 Reasons To Be A Long-Term Investor.” Two seemed particularly pertinent at this time.
- “Lowering Volatility Risk. In the short term, the stock market is a "voting machine" driven by emotion; in the long term, it is a "weighing machine" driven by value. While daily or monthly swings can be violent, historical data shows that the probability of a positive return increases significantly as the holding period extends.”
- “Psychological Peace of Mind. Constantly checking tickers and reacting to news cycles is exhausting and often leads to "decision fatigue." A long-term strategy provides a clear roadmap, reducing the stress and emotional baggage that comes with trying to outsmart the daily news.”
· “Don’t run for the cemetery! We love the GEICO horror movie parody featuring a group of teenagers fleeing a masked slasher and run into a garage in an effort to escape. Of course, the slasher follows in his prey. While in the garage, they have two options, jump in a running car with open doors or hide behind the chainsaws. They obviously choose the latter. The slasher shakes his head. Seeing the slasher, one of the teens yells “let’s run for the cemetery.” Poor decision. While under duress investors tend to also make poor decisions and, at this time, we believe, raising cash beyond what is required for peace of mind would also be a poor decision as if history is any guide as the sentiment surrounding the conflict in Iran hits an inverse crescendo, now is the time to perhaps run for the running car creating a “to buy” list rather than to sell.
· Mortgage Rates Climb. Demand Remains Stable. According to the Federal Home Loan Mortgage Corporation (FreddieMac), despite the pickup in rate (see below), “the housing market continues to show gradual improvements compared to a year ago amid recent rate volatility. Purchase and refinance applications are up year-over-year, and rates remain lower than last year when they averaged 6.65%.” However, we believe that should rates remain elevated relative to recent numbers rather than to year ago levels noted within the commentary above, demand will begin to suffer due to decreased affordability.
Economic Briefs…”
· The University of Michigan reported that its Final March Reading of Consumer Sentiment fell to 53.3 (-5.8% y/y) from a preliminary March level of 55.5 and from 56.5 at the end of February. The final March expectations component fell to 51.7 (-8.7% y/y) from a mid-March 54.1 as well as from 56.6 at the end of February. Lastly, the final March current conditions component slid to 55.8 (-1.4% y/y) from a mid-March 57.8 as well as from a final February 56.6. According to the Survey of Consumers Director, Joanne Hsu, “consumer sentiment fell back 6% this month to its lowest level since December 2025. Declines were seen across age and political party. Consumers with middle and higher incomes and stock wealth, buffeted by both escalating gas prices and and volatile financial markets in the wake of the Iran conflict, exhibited particularly large drops in sentiment.” (Source, Univ of Michigan)
· U.S. Export Prices surged 1.5% during the month of February (+3.5% y/y) as Import prices rose 1.3% (+1.3% y/y). Agricultural export prices rose 0.7% during February (+2.2% y/y), after rising 0.2% during January. Non-Agricultural Export Prices rose 1.7% during February (+3.8% y/y) after rising 0.7% during January. Please note that import and export prices are not affected by tariffs as they are measured prior to taxes. (Source, U.S. Bureau of Labor Statistics)
· Nonfarm Productivity rose by a revised 1.8% (2.5% y/y) (SAAR) during the fourth quarter, revised down from an initially reported 2.8% and down from 5.2% during the third. Hourly Compensation rose by a revised 6.3% (+5.0% y/y) as compared to an initial estimate of 5.7% and substantially higher than 1.1% during Q3. Adjusted for inflation, the Real Hourly Compensation rose a revised 3.7% (+2.1% y/y) compared to 3.2% during the prior quarter. As a result, Unit Labor Costs (defined as output per hour of work and can be determined by dividing total labor costs by output) rose a revised 4.4% (+2.4% y/y) during Q4 which was revised from 2.8% and follows a drop of 1.8% during Q3. (Source, U.S. Bureau of Labor Statistics)
· U.S. Construction Spending fell 0.3% in January (+1.0% y/y), after rising 0.8% during December. Private Construction Spending fell 0.6% in January (-0.1% y/y), after jumping 1.0% during December. Private Residential Construction Spending fell 0.8% during January (+2.3% y/y), surging 2.5% in December. Private Nonresidential Construction Spending fell 0.4% during January, after dropping 0.8% in December (-3.0% y/y). Lastly, spending on Public Projects rose 0.6% during January (+4.5% y/y), after slipping 0.1 during December. (Source, U.S. Census Bureau)
Economic Reports scheduled to be released this week, include the following – on Tuesday, March Consumer Confidence from The Conference Board and the Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics; on Wednesday, January Business Inventories; on Thursday, Initial Claims for Unemployment Benefits; and, on Friday the March Payroll Report accompanies by the Unemployment Rate, released by the Labor Department.
Several potentially market moving companies are scheduled to report earnings, to include Progress Software (PRGS), Nike (NKE), McCormick (MKC), Cal-Maine Foods (CALM), Lamb Weston (LW), Conagra Brands (CAG), and Acuity (AYI).
