Stocks sold off for obvious reasons as oil prices surged thirty-five percent after President Trump and Israel responded to Iran’s forty-plus years of international terrorism, decapitating its leadership. The leadership in Iran, correctly identifying this as an existential threat, retaliated by attacking its neighboring states, potentially cutting off shipping within the Strait of Hormuz, the route that carries approximately 20% of the world’s oil (~20mm bbl/day), mostly destined for China, India Japan and South Korea. Furthermore, that area carries approximately the same percentage of the global daily needs for liquified natural gas (LNG), mostly emanating from Qatar and the United Area Emirates, headed for those same countries noted above.
Of further note (see below), February Payrolls disappointed as employers, amidst the uncertainty as a result of the troubles in the Mideast and the uncertainty as to the impact of Artificial Intelligence (AI) on the labor force, sat on their hands, choosing to hire and fire only modestly. Employees, for their part, also stayed put, choosing job security over bettering their careers elsewhere, at least for the moment.
· Despite the downdraft this past week, it is important to maintain your long-term focus, as events such as these tend to cause a high level of anxiety, but historically are short-lived, with limited impact on the market. We believe what will be of impact would be to respond by changing your well-designed asset allocation model substantially. If you must move for peace of mind, do so incrementally.
· Investors hate uncertainty and for better or worse, that is precisely what they have on their plate at the moment. In addition to the war with Iran, during an interview on CNN, President Trump made the observation that “Cuba is going to fall pretty soon.” Adding that “they want to make a deal, and so I’m going to put Marco (Rubio) over there and we’ll see how that works out.” Not what we need right now.
· The HALO Trade, companies with specialize in heavy assets with low obsolescence, as opposed to the Magnificent 7 Trade (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) have been all the rage of late. The belief is that it will be more profitable to invest in those companies that cannot be disrupted by AI rather than the AI disrupters. A well-diversified portfolio should include companies both groups. However, we would be very careful to give up on the latter as after this extended period of consolidation, valuations are reasonable and, if the earnings from Broadcom (AVGO) and CrowdStrike (CRWD), released this past week are any indication, the future remains very bright. We believe we are in the first third of this revolution.
It’s The Economy…”
· Non-Farm Payrolls (approximately 80% of the U.S. workforce) fell by 92,000 during February after rising by a revised 126,000 (orig. 130,000) in January and falling 17,000 in December bringing the three-month average to a gain of just 6,000 and the six-month to an average 1,000 monthly decline. Economists continue to wrestle with the impact of a lack of immigration on the labor market as well as advances in technology. Private Sector companies shed 86,000 jobs while the Public Sector lost 6,000. Employment by the Federal Government has fallen by 330,000 since peaking in October 2024. Once again, payroll data was influenced by health care (-28,000), social services (9,000), construction (-11,000) and manufacturing (-12,000). The Unemployment Rate ticked up to 4.4% during February from 4.4% in December. The Unemployment Rate had gotten as low as 3.4% in April 2023. According to the household survey, employment rose by 203,000 as the labor force fell by 185,000. The Labor Force Participation Rate fell to 62.0% from 62.1%, its lowest level since December 2021. Average Hourly Earnings rose 0.40% or $0.15 to $37.32 during February from $37.17 one month prior and by $1.38 or 3.84% from $35.94 y/y. Average Weekly Earnings rose 0.40% or $5.15 to $1,280.08 during February from $1,274.93 during January. Average Weekly Earnings over the past year have risen by $50.93 or 4.14% from $1,229.15. The Average Duration of Unemployment rose to 25.7 weeks in February from 23.7 weeks in January, above the 21.0 weeks (SAAR) recorded one year ago. The Median Duration of Unemployment edged up to 11.1 weeks during February from 11.0 weeks in January, above 9.9 weeks (SAAR) one year ago. The number of Long-Term Unemployed (27 weeks or longer) rose 86,000 or 4.74% to 1,899,000 in February from 1,813,000 in January, above the level of 1,531,000 (SAAR) one year ago. (Source, U.S. Department of Labor)
· Retail Sales fell 0.2% in January (3.2% y/y), after remaining unchanged in January. Spending on Motor Vehicle & Parts fell 0.9% during January (0.1% y/y) after sliding 0.2% in November. Retail Sales Excluding Motor Vehicles & Parts were unchanged during January (3.9% y/y), likewise during December. Two key components of this report, Sales at Gasoline Stations dropped 2.9% during January (-3.7% y/y) after falling 0.1% in December while Restaurant and Drinking Place Sales slipped 0.2% during January (3.9% y/y) after falling 0.2% in December. Also of note was the 0.7% rebound in furnishing & home furnishing sales (-3.5% y/y) as well as the 1.7% drop in clothing & accessory store sales (3.0% y/y). (Source, U.S. Census Bureau)
Economic Reports scheduled to be released this week, include the following – on Wednesday, February Retail Inflation Consumer Price Index (CPI); on Thursday, Initial Claims for Unemployment Benefits and January Housing Starts; and, on Friday, January Orders for Durable Goods, Q4 GDP, January Personal Income & Spending, January Job Openings and Labor Turnover Survey (JOLTS) and a Preliminary Look at March Consumer Sentiment from the University of Michigan.
Several potentially market moving companies are scheduled to report earnings, to include Hewlett Packard Ent (HPE), Casey Stores (CASY), Oracle (ORCL), Harmony Gold Mining (HMY), Dicks Sporting Goods (DKS), Adobe (ADBE), Dollar General (DG), Ulta Beauty (ULTA), Lennar (LEN) and Alibaba Group (BABA).