Daily Commentary

MarketMinder’s View: Does this tell investors anything they don’t already know—and that markets haven’t already priced? “[T]he IMF presented three growth scenarios: weaker, worse and severe, depending on how the war unfolds. Under the IMF’s worst-case outlook, the global economy teeters on the brink of recession, with oil prices averaging $110 a barrel in 2026 and $125 in 2027. The IMF chose the most benign scenario for its World Economic Outlook ‘reference forecast,’ which assumes a short-lived conflict and oil prices normalizing in the second half of 2026, with an $82 per-barrel average for the year—well below Tuesday’s benchmark Brent crude futures price of around $96.00.” As for the middle “worse” path, the IMF envisions a longer conflict with oil staying around $100 and global GDP growth of 2.5% this year instead of the benign scenario’s 3.1%. But even in the “severe” adverse scenario the IMF is leaning to, it still projects 2.0% growth, which doesn’t seem to square with “the brink of recession,” as the article claims. A few things for investors. First, forecasts are only ever opinions—the IMF’s imprimatur doesn’t make theirs any more valid than others even if it helps garner more headlines. Second, the range of scenarios offered here—and waffling between them—shows how imprecise the prediction game is. But third, that doesn’t mean they don’t have value for investors because “official” forecasts/opinions color sentiment, which is where the chief economist’s warning that the adverse scenario looks increasingly likely comes in. The more airing this opinion gets, the more you know markets have dealt with it, which is noteworthy considering the S&P 500 and MSCI World Index regained pre-war highs Wednesday. It looks to us like stocks have spent the past month and a half dealing with worst-case scenario projections and then moving on despite all the ceasefire and blockade twists and turns.

MarketMinder’s View: To cut through the noise as you assess stocks’ journey back to pre-war highs, focus on forward-looking fundamentals. To wit: “Investors are seizing on what they see as a solid economic backdrop, in particular a strong outlook for corporate profits that has actually improved since the war began. ... S&P 500 companies are expected to increase earnings by 19% in 2026, up from an expected 15% increase just before the war began, according to LSEG IBES.” That said, we also see several misperceptions presented here that add to the clutter. The article touts the S&P 500’s lower 12-month forward price-to-earnings (P/E) ratio making “stocks look more enticing,” but valuations have no bearing on forward returns, and the drop mostly reflects stocks’ brief downturn—past performance. Past performance doesn’t predict. Fluctuating valuations reflect short-term sentiment more than earnings fundamentals. Meanwhile, future profit projections are among the most analyzed and studied metrics on Wall Street—markets continually factor them in. How reality eventually compares to that baseline is what drives markets most over time—not expectations alone. Higher oil prices’ being auto-bearish is another ill-conceived notion. For households and most businesses, higher energy costs are negative. But from a market perspective, energy spending is still spending—feeding into economic growth. This also feeds into why oil doesn’t drive inflation, which is caused by too much money chasing too few goods and services. With money supply growth at tame pre-pandemic rates, higher gas prices mostly force substitution, reducing demand for other goods and services that presses other prices down. Higher yields from “oil-driven inflation” is a false fear, never mind that yields don’t drive equity performance, either. Nor do Fed rate cuts, also cast here as a positive stocks will now miss out on this year. To us, the deep pile of misperceptions shows why the wall of worry stocks climb has more to go.

MarketMinder’s View: As we discuss the potential implications of the titular threat, please note MarketMinder is nonpartisan, favoring no party nor any politician, and focuses solely on political developments’ likely market ramifications, if any. At this point it isn’t a secret US President Donald Trump disagrees with Fed Chair Jerome Powell’s leadership, which is why he nominated former Fed board member Kevin Warsh to replace Powell when his term as chair ends in May (pending Warsh’s Senate confirmation, which remains in limbo as this article notes). In addition to stating he will stay on as caretaker Fed head if Warsh isn’t confirmed once his chairmanship ends May 15, Powell has hinted he may stay on the governing board beyond that since his term there doesn’t expire until January 2028. Seemingly in response today, Trump said he would fire Powell if he lingered (in which capacity, it isn’t clear, as the article notes). But is there anything market moving here for investors? We see all this as a tempest in a teapot. Trump has been trying to remove Powell—and remake the board generally—for months. This is just a continuation of that. The key question, though, is: Can he? In a separate case before the Supreme Court, Trump is arguing he can fire another board member, Governor Lisa Cook, which could create a precedent for Powell, too. But as the article concludes, “The Supreme Court is currently weighing her case, but based on the oral arguments held in January, the justices appear wary about any perceived incursion on the Fed’s ability to set interest rates free of political meddling.” And in a case last summer involving the termination of heads of other agencies, the Court went out of its way to cite the Fed’s legal construction setting a high bar for elected officials removing Fed policymakers. While worth monitoring, the status quo markets are familiar with doesn’t appear likely to be overturned any time soon. More broadly, we are talking about 2 seats of 12 on the Federal Open Market Committee, which steers monetary policy by consensus. This structure greatly limits any president’s influence over monetary policy.