MARKET COMMENTARY
Markets finally ended on a high note last week, breaking a five‑week losing streak. Unemployment data delivered a surprisingly positive reading, with nonfarm payrolls increasing by 178,000, almost triple the forecast for March. This pushed the unemployment rate down to 4.3%, reflecting some stabilization in the job market. On the other side of the Fed’s mandate, we’ll receive new inflation data for both the PCE index and the Consumer Price Index this Thursday and Friday. While inflationhas generally appeared to moderate over the past few months, inflation risk has been rising since the start of the war with Iran. That said, this week’s data should reveal the real impact that factors such as the closing of the Strait of Hormuz have had on U.S. prices across the board.
Last week we also received an update on the ISM manufacturing index, which rose slightly from 52.4 to 52.7, keeping us in expansionary territory. Looking closer at the components we track to better understand the manufacturing environment, there has been a large spike in prices paid of almost 8 points, bringing the metric to 78.30, while new orders have slowed by about 2 points to 53.50. While these readings are based on survey responses rather than hard data, it’s clear that sentiment has worsened, with manufacturers pricing in higher inflation likely correlated with the war in Iran into their outlook. Likewise, stagflation remains a risk that appears to be increasing as inflation picks up while growth slows. While we’re not overly concerned, ISM manufacturing data tends to be a leading indicator for the broader economy, making it important to monitor. This week we’ll also get new data on ISM services, which will help us gauge the health of the services side of the economy.
For anyone paying attention to the stock market this year, it has clearly not been smooth sailing. For the last few years, many investors have argued that markets were very overvalued and that a correction was overdue. With much of the market now moving down or sideways, we may be getting a clearer sense of where valuations should settle. That said, forward price‑to‑earnings ratios across the S&P 500 have been declining, reflecting investors who are less willing to pay up for expected earnings. While some degree of multiple compression is reasonable, forward P/Es in the tech sector are more debatable; if earnings materialize as expected, current levels could begin to look undervalued, potentially creating attractive buying opportunities.
Economic Releases This Week
Monday: ISM Services
Tuesday: Consumer Credit
Wednesday: None
Thursday: PCE Index, GDP, Initial Jobless Claims
Friday: Consumer Price Index
Stories to Start the Week
US Rescues Missing Airman as Iran Strikes Gulf Arab States
Trump gives Iran 48-hour deadline to reopen Strait of Hormuz or face new strikes
The U.S. plastics industry was in the doldrums. Then the Iran War began.
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Disclousure:
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