This Week in Review Podcast | Middle East Conflict, US Inflation, Tariff Update

Transcript

Tim Schluter:

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they may mean for markets and most importantly, the potential impact for investors. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, the latest on the Middle East conflict. Earlier this week, the United States and Iran agreed to a conditional two-week ceasefire contingent on the reopening of the Strait of Hormuz. This development follows weeks of escalating tensions that have fueled short-term market volatility, with big swings in Brent crude oil and global stock prices. Stocks rallied on Wednesday following the ceasefire announcement late on Tuesday. Brent crude oil and European natural gas prices dropped sharply. But importantly, stocks had started to move before the ceasefire announcement, reflecting markets forward-looking nature. And as we noted in our recent MarketMinder article, global markets, whether stocks, oil or natural gas, don't require perfection or hinge on minute-by-minute developments. Instead, they focus on broader trends and expectations 3 to 30 months out, weighing the overall economic, political and sentiment landscape. While headlines can trigger short-term volatility, markets often look past the noise, pricing in what investors anticipate for the months ahead. Whether or not this ceasefire holds, we believe the broader economic and political conditions that shape corporate earnings remain intact. For example, a steep global yield curve continues to support lending, while political gridlock across developed markets helps keep legislative risk low. It's these longer-term drivers, not fleeting headlines or short-term disruptions that matter most to stocks, in our view. In times of global uncertainty, discipline and patience remain key. With headlines continuing to unfold, remember that volatility is a part of the journey. Stay focused, stay disciplined and let your long-term strategy be your guide.

Next, US inflation.

On Friday, the Bureau of Labor Statistics released the March Consumer Price Index. The report revealed that headline inflation rose to 3.3% year-over-year. This was a material increase from February's 2.4% and the highest reading since 2024. Importantly, the reading was right in line with expectations, meaning stocks have likely already priced-in this information. Some may take today's report as proof the ongoing conflict in the Middle East will reignite hot inflation, but we caution against reading too far into a single month's increase. Month-to-month data can be volatile. While high oil prices have sometimes coincided with inflation and recessions, that isn't always the case. Context matters, and other factors often play a role beyond just high oil prices. Even with the jump in March, current inflation levels remain around long-term annualized average of about 3%. We believe this is likely to continue given global money supply remains modest. Remember, inflation is fundamentally a monetary phenomenon caused by too much money chasing too few goods and services. Rising energy costs don't directly impact the money supply. That's primarily influenced by central bank actions. So instead of focusing on short term inflation data, we encourage investors to keep their attention on broader market drivers and longer-term trends. And remember, when something is dominating headlines as gas prices have been, it is unlikely to catch stocks by surprise.

Finally, a look at markets one year after Liberation Day. One year ago, markets were still reeling from President Donald Trump's Liberation Day announcement. On April 2nd, 2025, President Trump declared a national emergency over the US trade deficit and invoked the International Emergency Economic Powers Act, or IEEPA, to impose sweeping tariffs on foreign imports. The announcement initially sent shock waves through markets. Within just five trading days, US stocks plunged 12.1%, while global stocks dropped 11.3%. However, the market's reaction was short lived. And as we noted in our recent MarketMinder article, by May 12th, 2025, stocks had fully recovered to break even as trade negotiations, enforcement challenges and corporate workarounds soften tariffs actual impact. Since then, much has unfolded. In February, the US Supreme Court delivered its widely expected decision to strike down President Trump's reciprocal and blanket tariffs. While many market participants viewed this as bullish news, US stocks barely reacted, rising just 0.7%. As we often say, it surprises that move markets most. And by then, the element of surprise had faded. Now, President Trump's replacement tariffs, enacted under a different trade authority, face their own legal challenges. But whether the final levy is 10% or 15%, or whether the administration extends tariffs beyond the Section 122 limit of 150 days, we expect their impact to be far less severe than some investors and headlines suggest. We believe tariff impacts have largely been priced into stocks and have lost their ability to surprise markets.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know This Week, released every Monday. You can also visit FisherInvestments.com anytime for our latest thought on markets. Thanks again for joining us, and don't forget to hit "like" and "subscribe."