The Iran situation continues to roil the markets. Energy assets throughout the region have suffered damage on top of only a fraction of shipping taking place through the Strait of Hormuz. In addition to higher fuel costs, the region also supplies major amounts of fertilizer chemicals, which are especially impactful as the spring planting season approaches.
Jerome Powell did not help the market with his yesterday. He didn’t see the need to consider a anytime soon. Powell said uncertainty remained on the impact of tariffs on inflation, and that the economy is not performing as though restrictive policy is holding it back inappropriately.
Fed governors Bowan and Waller formally objected to not cutting rates now, the first time that’s happened since 1993. The bond market reacted immediately. The rose dramatically and rose again today, now sitting at 3.83%, the highest level since last June. The rose as high as 4.32%, then cooled to 4.27%. Global bond rates followed.
Precious metals have taken a big hit on the prospects of higher-for-longer interest rates. is down 6% today, is down 10%, and is down 2.2%. ’s recent rally to above $74K is over, now below $70K. The has given up the 100 level despite higher rates and is down to 99.4.
World equities have turned negative YTD, albeit the world-ex US is still +3%. The is down 3% YTD, the -3.6%, the -5.1%, the -0.4%, the even-weighted S&P is +0.8%, the Magnificent 7 is down 9.7%. YTD, the weakest sector is , down 10.6%, the strongest is , +30.7%.
In the short term, energy prices are steering the boat. Any signs of a resolution leading to a ceasefire on energy assets in the Mideast should bring a major relief rally. An escalation would bring more volatility.
Whenever there’s this much wholesale selling, opportunities can be found for nimble investors. But timing is key, as another leg down is possible if the situation in the Mideast gets markedly worse before it gets better. Long-term, the economy is still growing, and earnings estimates are not being cut. The S&P is only down 6.1% from its all-time high. Even if we get to -10%, it’s a normal correction. When it turns, it will likely rebound quickly.
For now, the trend remains volatile.
