Wall Street’s main indexes posted weekly gains this week as investors digested hopes of a ceasefire deal between the U.S. and Israel and Iran’s regime. Meanwhile, oil dropped to around the $100 a barrel mark. Geopolitical tension remained heightened after Trump posted earlier this week that “a whole civilization” would “die tonight, never to be brought back again” if Iran did not agree to U.S. terms to end hostilities in the region. Of course, Trump always chickens out (TACO). On Tuesday, he claimed victory and moved the date of destruction of Iran by 2 weeks. But, instead of acquiescing to the US, Iran has yet to open the Strait of Hormuz to all ships and tankers and has instead begun charging $2 million per ship for those they deem to be ok to go through the Strait. Trump accused Iran of charging exorbitant fees to oil tankers traveling through the Strait of Hormuz, and on Friday, he warned that the U.S. would be ready to resume strikes in the region if Pakistani mediated talks with the regime failed.
In the meantime, economic data in the US continues to deteriorate. The March manufacturing index came in lower than expected and inflation rose with the consumer price index (CPI) rising to 3.3% from 2.4% in February. Q4 GDP growth estimate was further revised down and the Consumer Sentiment Index came in lower at 47.6 for April vs. the 52.0 consensus, signaling that consumers are feeling the pain of higher prices and becoming more bearish on the economy.
For the week, the S&P gained 3.6%, while the Nasdaq Composite rose 4.7%, and the Dow added 3.0%.
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As much as Trump would like to forget about the Iran War and move on to other things, prospects for the survival of a US-Iran ceasefire remain dim as Trump flip flops between optimism and new threats. But, Netanyahu hasn’t changed his position and continues to bomb Lebanon, which he says is directed at Hezbollah, and isn’t part of the US-Iran deal. Iranian officials have said the attacks, which have killed more than 1,700 people since the war began, must stop if the Strait of Hormuz is to be fully reopened to traffic.
As long as there is no resolution to the war, we suspect the Strait of Hormuz will remain closed. This means oil prices will remain high, sucking up all the disposable income from US consumers and slowing down consumer spending on other goods and services even as inflation continues to rise. But, Wall Street is ignoring all the signs and expects a good earnings season from US companies – which starts on Monday with all the big banks reporting Q1 results. Our fear, at Future Wealth LLC, is that while Q1 results will likely be strong and meet Wall Street expectations, Q2 guidance could be cautious which could trigger a sell off and a rush to safety amongst investors.
Earnings season in the midst of a war is no fun while there are bigger problems to be tackled.