Weighing ceasefire breathing room against rising inflation, steady jobs growth and weak consumer sentiment.
After the White House warned of a possible escalation of attacks on Iran amid growing frustration on reopening the Strait of Hormuz, a temporary ceasefire was declared on Wednesday, sending markets off to the races in a sign of hope.
Like me, you were probably anxious about some of the rhetoric being tossed around, but in the end, the ceasefire news enabled everyone to exhale, at least for a couple of weeks while negotiations continue.
For their part, Iran has demanded a permanent end to the war, a lifting of economic sanctions and sizable reconstruction aid in exchange for allowing a broad-based reopening of the strait. For the U.S., the goals are preventing Iran from having a nuclear weapon; eliminating its ballistic-missile capabilities; laying the ground for a popular overthrow of the regime; and, eradicating Iranian proxies in the Persian Gulf. Add to that list reopening the Strait of Hormuz for good.
This temporary ceasefire is fragile, with both sides already declaring the other is violating it. But for the moment, markets are feeling more encouraged, especially as oil prices have drifted back to $96 per barrel for West Texas crude and $95 a barrel for Brent crude. A high-volume relief rally followed in the markets, led by cyclical sectors like consumer discretionary, industrials, info tech and communication services, which all tend to do best in a strong economy.
Still, it could take many weeks to get global supply chains on track, assuming an end to hostilities. If investors believe the strait will reopen and transit levels improve, the geopolitical risk premium likely stays lower. If not, crude could snap back higher. The price of oil remains well above prewar levels and is oscillating as Iran and the U.S. trade accusations and prepare for weekend talks.
Next week kicks off earnings season, which will return a much needed focus to fundamentals during these geopolitical tensions and a rash of troubling economic data.
Barometers of inflation continue to demonstrate the painful reality of higher prices. The March consumer price index (CPI) rose 0.9% month over month and increased 3.3% year over year to its highest growth rate since mid-2024. Energy, especially gasoline, drove the upside surprise, reflecting the oil shock from Middle East disruptions. Core CPI, which subtracts the impact of food and energy price changes, was more muted, rising 2.6% year over year.
While a dated number, the February personal consumption expenditures (PCE) release this week showed annual core inflation—closely watched by the Federal Reserve—climbed 3%. These inflationary data points are surely what will keep the Fed on the sidelines, at least until the end of the year, especially as March jobs data did not raise alarms. Nonfarm payrolls increased by 178,000 and the unemployment rate was 4.3% last month. Other data, like the March services purchasing manager’s index (PMI), showed expansion, albeit slower than the month before.
Notably, the University of Michigan consumer confidence index released today showed perhaps the biggest bogeyman the U.S. economy faces—the total lack of confidence U.S. consumers are feeling right now. The index marked an all-time 70-year low and the weight of that uncertainty could shift from thoughts and feelings to action—consumers curbing spending, pulling back, hunkering down. This risk looms large on our minds as we contemplate the future and implement your investment and financial plan.
Just to frame that for you, consumer sentiment right now is below the troughs of 2022, when inflation surged post-COVID. It is below the Volcker era in the early 1980s when interest rates surged above 20%. It is below the numbers registered during the oil shocks of the 1970s. Consumers are feeling much worse now, even relative to periods with much higher inflation.
Forgive me for saying it, but the bright side of that depressing sentiment is that we are feeling much worse than what is likely to play out in reality. Even the most conservative of economic forecasters are calling for a growth recession at worst for the U.S. (a period during which growth slows—but does not cease—and unemployment rises). Now, of course, perception has the risk of becoming reality if we all shut down and stop spending, and businesses pull back on expansion plans.
My gut is that we are living with an uneasy and complicated geopolitical situation but one that is not escalating. Rather it is deescalating more slowly than we would like, leaving oil prices around $100 to $110 per barrel for 2026. As such, policymakers will be forced to focus on preventing inflation expectations from going up, delaying interest-rate cuts. Some Fed governors may even signal a desire to increase rates.
In this scenario, equity markets will still generate gains, but with greater volatility and less conviction. Gains would be led by higher-quality companies—those with steadier earnings and stronger balance sheets—alongside select defensive industries. But while it may not feel like it, the market has already done a lot of the hard work. There have been material price corrections in highly priced companies and those on the low-quality end. Some of that repricing has been due to geopolitical risk, some due to private-credit concerns and some to the negative side effects from AI.
We must all remember though that markets don’t wait for certainty—they move ahead of it. You have to do that as well, moving ahead with your financial life and making decisions with the best information we have. Pair this with an investment plan that accounts for the range of outcomes and gives you a comfortable landing in all cases.
I leave you with one of my favorite quotes from playwright Tennessee Williams, who said: “The world is violent and mercurial—it will have its way with you. We are saved only by love—love for each other and the love that we pour into the art we feel compelled to share: being a parent; being a writer; being a painter; being a friend. We live in a perpetually burning building, and what we must save from it, all the time, is love.”
Hopefully that sentiment resonates in your own hearts as it does mine when thinking through challenging periods like this one.
Written by a human.