This Week in Review | Energy Markets, Fed Meeting, Earnings Reporting

Transcript

Paige Tyson:

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, energy market volatility.

Global oil prices continued to climb this week as the strategically important Strait of Hormuz remained effectively closed to shipping due to the ongoing conflict with Iran. As of this morning, Brent crude oil, the global benchmark, is trading around $110 per barrel. Natural gas has also been affected, with the European benchmark spiking as well, but the prices of both oil and natural gas remain below the highs we saw in 2022. For investors, volatility in energy markets can spark concerns about rising costs or potential economic slowdown. Now, if energy prices go much higher and remain elevated for months or longer, that could have the potential to materially impact the global economy, but we think that's unlikely. The unfortunate truth is that stocks have seen war in the Middle East before, from the Gulf War, the Iraq war, Israel's war with Hamas, and many more. But 6 to 12 months after the outbreak of a conflict, stocks tend to be nicely positive, even in the case of Russia's war with Ukraine. Yes, it contributed to the 2022 bear market, but it wasn't the sole driver. Rate hikes, excessive money supply growth during the pandemic and post-COVID supply chain disruptions played a big role. And that bear market was historically short and shallow, even though the conflict tragically continues. And we'll continue to monitor energy markets. But during uncertain times, some things remain unchanged. Global stocks look forward. They weigh future earnings, they price-in developing risks and eventually, they move on. And should energy prices settle into a higher range than in recent years, we believe businesses and economies are resilient and well equipped to adapt.

Next, the latest on the Fed.
On Wednesday, the US Federal Reserve left the policy rate unchanged at 3.5 to 3.75%, as expected. This marked the second monetary policy meeting of the year and the second consecutive meeting, with no changes to the policy rate, as Fed members cited uncertainty stemming from the ongoing conflict in the Middle East. We understand that rising costs can be incredibly stressful and create real hardships for many. But while higher energy prices could contribute to a temporary uptick in inflation, we think it's unlikely that it'll lead to a prolonged or significant spike in broad-based inflation. Inflation, at its core, is always and everywhere a monetary phenomenon driven by too much money chasing too few goods and services. Currently, money supply growth is moderate, which helps keep inflationary pressures in check. While energy supply constraints stemming from the conflict could drive short-term inflationary effects, history shows that oil price spikes don't necessarily translate into sustained, broad-based inflation. Plus, Energy makes up less than 7% of the US Consumer Price Index, which limits how much higher gasoline or other energy prices can influence the headline inflation rate. And even if inflation accelerates some, it's difficult to know how Fed officials might respond. And while central bankers overreacting to high oil prices is a potential risk worth monitoring, the global yield curve is still nicely positive today. And incremental rate adjustments, up or down, are unlikely to materially change this underlying bullish factor for stocks in the near term. Monetary policy is just one of many factors influencing market performance. For long-term investors, it's crucial to focus on broader market trends and fundamentals like household spending and corporate activity, which have both been resilient, alongside monetary policy developments, to better understand where the market may be headed next.

Finally, a proposed change to quarterly reporting requirements.

This week, we saw renewed speculation that the US Securities and Exchange Commission, or SEC, was preparing a proposal to eliminate a rule that requires US companies to report earnings quarterly. Instead, regulators are believed to be considering a move to less frequent semiannual reporting. The SEC could release its proposed rule change soon. And if approved, this would mark a significant departure from the quarterly reporting system that US publicly traded companies have followed for over 50 years. Proponents argue that reducing reporting frequency could ease compliance burdens and encourage more companies to go public, but we think the potential benefits to this change may be overstated. The decline in publicly traded companies, from over 7500 in 1998 to around 3500 today, has been driven by a range of factors beyond just quarterly reporting. Regulatory changes like these often draw significant attention, particularly when tied to something as closely scrutinized as quarterly earnings. Yet, in our view, this all seems relatively benign. Historically, rule changes like this take years to develop, and they undergo public review before reaching a final decision. This should give markets ample time to adapt if the shift to semiannual reporting moves forward.

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 thoughts on markets. Thanks again for joining us, and don't forget to hit "Like" and "Subscribe".