Daily Commentary

MarketMinder’s View: This long-ish piece mentions several publicly traded companies, so please note MarketMinder doesn’t make individual security recommendations. They are coincident to our highlighting a broader theme: As the Iran war passes its one-month anniversary, economic sentiment is becoming increasingly dour, America included. As described, if the Strait of Hormuz remains blocked, oil and gas prices will continue rising—forcing central banks to raise rates—and stores won’t be able to stock their shelves. Under projected worst-case scenarios shared here, the longer the war lasts, the higher the likelihood of a global recession. Mind you, the Strait’s blockage is a global economic negative that has contributed to higher energy prices and raised uncertainty. We don’t dismiss how supply disruptions have caused hardships in some countries. But before concluding a global recession looms, consider: Early data suggest manufacturers were acting as the war started to avoid shortages and lock in lower prices. They are already applying pandemic-era lessons to mitigate the war’s effects. As for US energy supply worries, America just doesn’t rely on Hormuz-bound energy imports much. Per the US Energy Information Administration, only about 2% of America’s total petroleum liquids consumption and roughly 7% of its crude oil imports pass through the Strait. The war is affecting prices globally, but energy shortage concerns are off base right now. This piece’s decidedly negative slant further indicates sentiment has tumbled in the US since the war’s start—raising the likelihood of positive surprise as a better-than-feared economic environment emerges.

MarketMinder’s View: The Institute for Supply Management’s (ISM’s) US services purchasing managers’ index (PMI) hit 54.0 in March, down from February’s 56.1 but still well above the 50.0 line that separates expansion and contraction. As the title suggests, Iran war-related price pressures were the main culprit in March’s moderation, as the subindex for “prices paid for services and materials jumped to 70.7, the highest since October 2022.” Weak employment conditions, which predate the war, also weighed on results. Overall, several of the subindexes disappointed, but taking a step back, ISM’s trends are in line with the moderating-but-growthy services sector we saw globally in S&P Global’s flash March PMIs, and as we wrote then, this is likely more about sentiment and uncertainty than broad business fundamentals. For example, most of the commentary here focuses on businesses’ adjusting and preparing for war-related disruptions—a negative spin. But as the final sentence notes, “service providers experienced the strongest growth in new orders in more than three years.” Today’s orders are tomorrow’s production, so this bodes well for future readings (and likely reflects businesses’ acting preemptively in case of potential disruptions). Second, and perhaps more important, these data are backward looking—stocks have already moved on from what happened in March. Still, though, we think it is worth noting the overly negative reaction here to what was a “meh” report overall—bullish.

MarketMinder’s View: According to this long, very long and meandering article, the global economy will be worse off because of the Iran war—it is just a matter of magnitude. As argued at the top, energy prices are “painfully high” and supply cuts to commodities including oil, natural gas and fertilizer could make daily life even more difficult—potentially even setting off a global recession. Even if that worst-case scenario doesn’t come to pass, countries with fewer resources (e.g., those in developing Asia) may still suffer more than their developed peers. After running through a few possible outcomes, the piece concludes holding cash during this uncertain, volatile time would be a sensible move for investors. Look, we aren’t here to critique any specific forecast or economic outlook—these are opinions based on educated estimates, and a few of them may end up being correct. But we urge investors to refrain from treating them like crystal balls, especially because they won’t reveal what stocks will do. To us, the main value with mainstream economic forecasts is as a sentiment measure. When the consensus is expecting the titular “bad, very bad and much worse,” that suggests reality has a low, very low and even subterranean bar to clear to exceed expectations—a bullish development. As for the concluding investment advice, we think it errs greatly in focusing on feelings, not goals.  Sure, holding cash may feel “safe” as markets bounce around, but what happens when the negativity ends and the bull market continues? Missing out on a rebound and subsequent bull market is even more dangerous, in our view, than riding short-term volatility. We think it is wise to factor your comfort with volatility as you select an investment strategy, along with your goals, cash flow needs and time horizon. A blended portfolio of stocks and bonds, which reduces expected volatility relative to an all-stock portfolio, strikes us as a much wiser tactic than having far more cash than you need for an emergency fund—and thus missing returns—or hopping out of stocks every time things feel rocky. For more, see yesterday’s commentary, “Some Timeless Counsel After March’s Volatility.”