The Middle East conflict, surging energy prices, President Trump’s five-day bombing pause, his announcement of discussions with Iranian leaders followed by Iran’s denial of discussions are just a few of the factors whipsawing stock prices this week. And though many financial gurus are currently forecasting WTI crude will rise above $100 a barrel and stay there, President Trump is predicting oil prices will soon fall like a stone. Neither forecast has been nor apt to be accurate. Neither are the headlines indicating that President Trump “is losing the war.” A Bloomberg News story suggests the conflict is escalating with Gulf States contemplating military options; meanwhile, The Jerusalem Post writes that the US has sent Iran a 15-point plan to end the war. In truth, there is very little that is predictable about this situation; but we would be wary of biased headlines.

But, as we stated last week, there is one obvious fact. Countries such as Saudi Arabia, UAE, Qatar, Jordan, Bahrain, and Kuwait – countries with more modern thinking leadership than Iran — are lining up on the side of the US and Israel, which leaves Iran more isolated than ever before. This collaboration of countries, and the fact that Pakistan is offering to broker a peace deal, leads us to believe there will be some resolution of this conflict in coming days. Still, we do not expect a smooth transition. The Iranian-sponsored Islamic terrorist group has always been purposefully decentralized with autonomous offshoots which allows individuals, or small groups, to survive and carry on even without traditional leadership. This will make any negotiations difficult and perhaps impossible to enforce. We are hoping for peace but fear it may be a difficult road even after the bombing stops.

Plus, the private credit problem continues to unfold. This week two of the biggest names in private credit, Apollo Global Management Inc. (APO – $111.25) and Ares Management Corp. (ARES – $106.04), moved to restrict withdrawals from funds in response to withdrawal requests. Many are concerned that a liquidity squeeze may materialize in the illiquid private credit market. In our view, the risk is substantial, but to the extent that it remains in the private credit market and does not impact the banking system means the risk is not systemic and is unlikely to trigger a larger financial crisis.

Separately, under the state’s consumer protection laws a New Mexico jury found Meta Platforms, Inc. (META – $592.92) liable for failing to protect young people from online dangers. The verdict included $375 million in civil penalties and will be appealed. In Washington DC, in an effort to reach an agreement with Democrats after a more than month-long standoff, and after travelers suffered ridiculously long check-in lines at airports, Senate Republicans offered to fund all of the Department of Homeland Security except for ICE.

Technical Indicators

There was surprisingly little deterioration in our technical indicators this week. The 25-day up/down volume oscillator was slightly lower at negative 0.88, this week, but still neutral. See page 8. The 10-day average of daily new highs fell to 104 this week and new lows were higher at 181. This combination of daily new highs and lows above 100 keeps this indicator at neutral but tilting negative. See page 9. Last week’s AAII survey showed bullishness fell 1.5% to 30.4% and bearishness jumped 5.6% to 52.0%, its highest reading since April 30, 2025. The 8-week bull/bear index is negative 2.9% and neutral. It was last in positive territory in late September. See page 10. Our biggest concern is that the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite index have all closed below their 200-day moving averages for four consecutive trading sessions. The longer this breakdown continues, the greater the risk to the major bullish trend and the more likely these moving averages shift from being support to being resistance. Note that the Russell 2000 index is the only major index to remain above its 200-day moving average. We remain cautious since technical indicators as well as negotiations in the Middle East appear to be at pivotal junctions this week; but we remain bullish for the longer term.

Earnings

Bullishness is supported by a fundamental backdrop that remains bright. As fourth quarter earnings season ends, we find there has been a big reassessment of 2026/2027 earnings. This week the LSEG IBES consensus earnings estimate for 2026 rose $2.83 to $320.46 and the 2027 forecast rose $2.08 to $372.50. The S&P Dow Jones consensus forecast for 2026 jumped $5.16 to $319.59 and the estimate for 2027 rose $7.34 to $373.50. This means the market is trading at 20.5 times the IBES 2026 estimate and 17.7 times the 2027 estimate. These are some of the best market valuations seen in a long time.

Economic Roundup

With WTI crude oil prices up nearly 30% YOY, it is the risk of an inflation surge that has investors understandably worried. The final demand PPI index was up 3.4% YOY in February, up from 2.8% YOY seen in January. PPI for finished goods was still modest at 1.7% YOY, but this is apt to rise as higher energy costs trickle down through the economy. Core PPI for finished goods was 3.7% YOY in February and has been above 3% YOY since October 2025. See page 3. Inflation numbers are troubling because while PE multiples have come down to attractive levels, higher inflation goes hand in hand with lower PE multiples. Therefore, the market will remain captive to the price of oil for at least several months.

The residential real estate market continues to weaken. Pending home sales are based on properties that go under contract and this index typically leads existing home sales by two months. The index was down 0.8% YOY in February, with most of the weaknesses in sales centered in the Northeast. In the month of January private residential construction spending fell 0.8% to $933 billion (SAAR) but was up 2.3% YOY. Among the components of construction, outlays for new single-family homes fell 0.2% in January and were down 5.8% on a year-ago basis. Spending on new multifamily homes fell 0.7% but was 0.4% higher than in January 2025. Spending on home improvements dropped 1.4% in January but increased 12.5% over the year. Overall, the data shows households are improving their homes versus trading up. See page 4.

New home sales were down 11.3% YOY in January, with the greatest weakness seen in the Northeast. Inventories rose to 9.7 months of supply. The median home price fell 7% YOY and average home price fell 3.6% YOY. Data shows that YOY home price increases peaked in early 2024 and have been steadily decelerating. Meanwhile, Fed data shows that household net worth rose $2.2 trill in the fourth quarter to $184.1 trillion, up 8.5% YOY. Household debt ratios rose fractionally, but the broad debt service ratio ended 2025 at 11.32%, up from 11.26%, but still below the long-term average of 11.84%. In sum, the average household with a stock portfolio did well in 2025, but homeownership remains out of reach for many.

Gail Dudack

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News of the war in Iran, the blockade in Strait of Hormuz, Brent crude oil at $103.52 a barrel, and the average price for a gallon of gasoline rising from $2.84 to $3.86 in a month, dominates the headlines this week. And while President Trump stated that the conflict should be over in a few weeks, there are risks to this timing. As we wrote two weeks ago: “recent acts of desperation by Islamic Revolutionary Guard Corps (IRGC) could prove fatal, but this retaliation will make the next few days (weeks?) dangerous and unpredictable. We doubt most members of the IRGC have been or will be willing to negotiate and would rather fight to the death. This exemplifies a culture many in the Western world do not truly understand, and it is possible that the conflict could escalate, the number of participants in the war zone could increase, and this turmoil would hurt the production and flow of oil to the world.”

Although we understand that in geopolitical terms short term pain — even in a mid-term election year – can be worth the long-term gain of ridding the world of a nuclear-powered sponsor of death and terrorism, we cynically believe many in our society seek immediate satisfaction and are susceptible to social media to drive their views and emotions. Moreover, despite this week’s news of the elimination of Iran’s leadership including security chief Ali Larijani force commander Gholamreza Soleimani, we expect the remnants of the IRGC will continue to do as much damage as possible, and the war will take longer than President Trump expects. The media may attack the administration for this conflict, but it is a near sighted opinion, in our view. Ironically, this war appears to be moving much of the Middle East closer in line with President Trump while much of Europe stands stoically in distant disagreement. Yet, as every good analyst knows, you should follow the money, or in this case the strength of the economies, to see where the trend leads. A unified US/Middle East creates a powerful force.

And again, we must reiterate that as a net exporter, the US is in a far better position economically than much of the world in terms of energy. Not only has crude oil risen, but so has the dollar, making energy more expensive around the world. And as an exporter of petroleum products, the energy sector and much of the US stand to benefit from higher prices as seen by the outperformance of the energy sector, up over 30% year-to-date. See pages 11 and 12. But this conflict is triggering economic and financial issues around the world, including in the Middle East. We were surprised to read that S&P placed Iraq on CreditWatch negative (the risk of a downgrade) due to the sharp fall in oil production which could put pressure the country’s fiscal and external debt responsibilities. S&P did note that Iraq has significant buffers to meet its foreign debt repayments and this mitigated the risk of a full downgrade.

And though the rising price of crude oil makes another round of inflationary pressure a huge risk, newly released data shows the US economy was in good shape in February before the conflict began. The CPI report for February showed headline inflation was unchanged at 2.4% YOY and core CPI was unchanged at 2.5%. This was positive news but given current crude oil prices, it is old news. The underlying data for February was more interesting since it showed food inflation at 3.1% YOY, up from 2.9% YOY in January, and the broad energy index up fractionally at 0.5% YOY, versus negative 0.14% in January. Within core CPI the price index for goods increased 1.0% YOY, down from 1.1% YOY, and services rose 2.9% YOY, unchanged from a month earlier. See page 3. Wages rose 4.3% YOY in February, well above the 2.4% increase in the CPI, which suggests the typical household is keeping up with inflation. But this makes upcoming data more important. See page 4. The PCE deflator for January rose 2.8% YOY down from 2.9% YOY and the core PCE deflator was up 3.1% YOY, up a notch from 3.0%. All in all, inflation remained stable and well below the long-term average of 3.4% YOY.

Personal income rose 4.4% YOY in January, down from 4.6% a month earlier, but the important number was real personal disposable income which rose 1.8%, up from 1.2% in December. The savings rate was 4.5%, up from 4.0% in December and personal consumption grew 2.4% YOY, up from 1.6% YOY. There was a surprise increase in industrial production in February which grew 1.4% YOY and residential housing starts rose 7.2% YOY (multi-family up 30% YOY) although permits fell 5.4% YOY (multi-family down 12.4%). 

The fiscal deficit for the month of February 2026 was $307.5 billion, up slightly from the $307.0 billion seen a year earlier. Nevertheless, the twelve-month running fiscal deficit was $1.633 trillion, down 24% from the $2.15 trillion seen in February 2025. More importantly, the current $1.633 trillion deficit represents an estimated 5.3% of GDP (using recently revised 4Q25 GDP) down significantly from the 7.2% of GDP seen in February 2025. This is important data and should have a favorable effect on US Treasury bonds as supply slows. The goal of the administration is to get the deficit down to a sustainable 3% of GDP and to see economic growth above 3%. Note that a ratio of 3% of GDP (or less) is typical during economic expansions, but this was not a focus of the Biden administration and deficits grew because of fiscal stimulus throughout this four-year term. This improvement in the fiscal deficit in the past year has been amazing and significant, but we are concerned that unless the administration finds a workaround to the Supreme Court decision on tariffs, there could be a future burden to the Treasury.

Although economic news has been important, we believe it is fundamental support that is keeping market action stronger than many expected. According to LSEG IBES, of the 496companies in the S&P 500 Index that have reported revenue for the fourth quarter of 2025, 72.4% reported revenue above expectations and this compares to the last 24-year average of 63%. Overall, companies are reporting revenues that are 1.9% aboveestimates, which compares to a 24-year average surprise factor of 1.3%. Earnings for calendar 2026 are presently forecasted to increase 16.2%, which is far better than the long-term average of 8.1%. The S&P 500 is currently trading at 21.1 times the IBES 2026 estimate, the lowest multiple since July 2025, and 18.1 times the 2027 estimate. See pages 6, 7, and 13.

There has been some weakness in a few technical indicators this week, in particular the 10-day average of daily new highs and lows. Daily new highs have dropped to 100 and daily new lows have risen to 121, leaving this indicator at risk of going negative if new highs fall below 100. The AAII sentiment indicators were also worth noting with bullishness falling 1.2% to 31.9% and bearishness jumping 10.9% to 46.4% (its highest reading since November 12, 2025. The neutral category fell 9.7% to its lowest reading since November 12, 2025. We would note that November 2025 was when the index successfully tested its 100-day moving average. In recent days the S&P index has been testing its 200-day moving average, now at 6612.14, which we believe will prove to be a meaningful test. We expect the test will be successful, but we remain cautious. The underlying fundamentals of the economy and the stock market remain solid and favorable, but the growing geopolitical divide due to Middle East turmoil is at a dangerous stage in our view. Moreover, Friday, March 30, is a quadruple expiration day which can be preceded by a day or two of great volatility. A break of the 200-day could trigger more short-term selling. We would wait for a successful test. And lest we forget, it is FOMC week and we expect the Fed will not change monetary policy.

Gail Dudack

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As noted last week, we remain a buyer of market weakness over the longer term but given the unpredictability and messiness of the war in the Mideast, we remain cautious in the short term. War-time changeability and chaos are best represented by the wild swings in the price of crude oil. There is no shortage of oil around the world and prices are expected to return to normal in coming weeks, but over 68 loaded oil tankers, or roughly 4.2 billion gallons of crude, are currently trapped or delayed in the Persian Gulf region due to the conflict. This has triggered volatility in WTI intermediate crude futures (CLC1 – $83.45), which rose from a closing price of $65.21 on February 26 to a recent intraday high of $119.48, before closing just above $83 a barrel on March 10. Both Brent crude and WTI prices are roughly 40% higher than they were earlier in the year and this will put pressure on consumers and inflation benchmarks if the Strait of Hormuz does not open soon. According to price-tracking data from AAA, the average price for a gallon of gas in the US was up six cents this week to roughly $3.54, and the only state with gas prices under $3 a gallon was Kansas at $2.96. California continues to have the most expensive gas in the US, with a gallon costing an average of $5.29.  

Cons

The inflationary impact of higher energy prices clearly poses a risk to the economy since higher energy costs hurt middle and lower-income households most severely. It could also mean the Federal Reserve may postpone lowering interest rates and this would be a disappointment to the consensus.

Another concern we have is the weakness in the job market. The employment environment has been deteriorating for over six months, but the increased use of AI is clearly stunting job growth.

The February jobs report was a negative surprise with a loss of 92,000 jobs for the month (versus expectations of a 50,000+ increase) and the unemployment rate rose 0.1% to 4.4%. According to the BLS establishment survey, employment grew by a mere 156,000 jobs in the 12 months ended February. More disturbingly, the household survey showed a 12-month decline of 426,000 jobs. See page 4. However, the BLS delayed its annual Census Bureau population update from January to February, which means February’s report included revised population estimates which incorporated new information on births, deaths, and migration changes since the most recent decennial census. This year’s population assessments also incorporated data on net international migration. The changes made to January 2026 data also reflected adjustments back to the April 2020 Census population base. After these head spinning revisions, the January 2026 employment number, on a not seasonally adjusted basis, showed a month-to-month decline of 2.05 million jobs and a decline of 895,000 jobs on a seasonally adjusted basis. Not surprisingly, our year-over-year household survey chart now shows January and February job growth to be negative 0.45% and negative 0.26%, respectively. Negative growth in employment is normally a sign of a recession which implies this is a major concern. However, since all these changes were applied to the month of January 2026, year-over-year or month-to-month comparisons are impossible. All in all, we have found the accuracy and assessment of BLS data to be troublesome in recent years so we would not make major decisions based on this data. Still, there does appear to be weakness in the job market. 

Pros

One may wonder why the recent stock market, despite all the volatility and the risks to oil and the Middle East, has performed as well as it has. We believe it stems from the fact that most traders expect the conflict to be resolved quickly, and the administration suggests it should. Moreover, conflicts and energy crises, on average, have not been a big negative for the equity market, particularly in recent years. A table on page 3, from The Stock Traders’ Almanac, shows that over the last 87 years equity markets have had an average gain of 3.4% in the six months (2.9% in twelve months) after the beginning of a crisis and a 7.6% gain in the six months (12.7% in the twelve months) following the start of a crisis over the last 47 years.

The worst one year experience was the 34.3% decline which followed the Arab Oil Embargo of 1973. This embargo sent oil prices from $2.90 to $11.65 a barrel, led to a rationing of gasoline in the US, and gave rise to inflation peaking at 11% in 1974. The second worst one-year performance followed the October 2001 invasion of Afghanistan. However, this decline was due primarily to the bursting of the Dot-com bubble in March 2000. In short, history suggests crises have not been major issues for the equity market.

In addition, some recent reports suggest the job market may not be as bad as we thought. The ISM manufacturing and nonmanufacturing employment indices rose to 48.8 and 51.8, respectively, for the month of February. As a result, the total employment index rose to 100.6, its highest level since February 2025. The ISM manufacturing index for February was down 0.2 to 52.4, but the nonmanufacturing index jumped 2.3 points to 56.1. Both ISM indices were up over 4% YOY, reflecting an improvement in the economy and the ISM nonmanufacturing survey showed improvement in each category, except for prices paid which fell from 66.6 to 63.0 – a positive. See page 8.

Although we are monitoring consumer data closely, most reports remain solid. Advance estimates of retail and food services sales for January 2026 were down 0.2% for the month, but up 3.2% YOY seasonally adjusted and up 3.1% YOY not seasonally adjusted. These were solid numbers and exceeded inflation of 2.4% YOY. Total vehicle unit sales were 16.1 million in February, up nearly 6% for the month, but down 1.8% YOY. The good news in this report was the 2.8% YOY increase in domestic light weight vehicles. Conversely, foreign light weight vehicle unit sales fell 7.0% YOY. This suggests the administration’s fiscal policy that gives tax breaks to domestic-made vehicles (Car Loan Interest Deduction) continues to have a positive impact on domestically made vehicle sales. See page 7.

New consumer credit data was also positive. Consumer credit outstanding increased $8.1 billion in the month of January, which included a $4.7 billion increase in revolving credit and a $3.3 billion increase in nonrevolving. As a result, the six-month rates of change for total, revolving, and nonrevolving credit were 1.2%, 1.4%, and 1.1%. The twelve month rates of change were 3.2%, 1.9%, and 3.6%, respectively. This is a significant improvement from most months in 2025 when revolving credit was contracting. Contractions in credit are often signs of consumer distress and recession. Perhaps the greatest positive of all is the growth in S&P 500 earnings. As fourth quarter 2025 earnings season ends, consensus estimates continue to increase. This week the LSEG IBES consensus earnings estimate for 2026 rose $1.33 to $316.69 and the 2027 forecast rose $2.37 to $367.81. The S&P Dow Jones consensus estimate for 2026 rose $1.28 to $313.60 and the estimate for 2027 jumped $2.50 to $365.30. This means the market is trading at 21.5 times the IBES 2026 estimate and 18.5 times the 2027 estimate. In sum, fundamentals remain solid and support buying on weakness. See page 10.  

Gail Dudack

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We remain a buyer of market weakness over the longer term but given the escalation of the war in the Mideast, we would be cautious this week since war can be chaotic and messy. The war took a dangerous turn after Iran launched widespread retaliatory missiles and drone attacks targeting US military assets, as well as airports and oil infrastructure across the Middle East. The countries impacted include all six of the Arab nations in the Gulf Cooperation Council (GCC): Kuwait, Oman, the United Arab Emirates (UAE), Saudi Arabia, Qatar, and Bahrain, as well as Jordan. Attacks have also hit civilian infrastructure, oil facilities, British air bases in Cyprus, and oil tankers in the Strait of Hormuz. In our opinion, these appear to be acts of desperation by Islamic Revolutionary Guard Corps (IRGC), acts that could prove fatal, but this retaliation will make the next few days dangerous and unpredictable. We doubt most members of the IRGC have been or will be willing to negotiate and would rather fight to the death. This exemplifies a culture many in the Western world do not truly understand, and it is possible that the conflict could escalate, the number of participants in the war zone could increase, and this turmoil would hurt the production and flow of oil to the world. Weakness in the financial markets have been an obvious response to this threat, to which we add several important observations.

First, this conflict shows how vital US energy independence is to America. The disruption in oil exports is expected to have a nominal impact on the American economy since the US is a net exporter of energy. The effect will be minimal if the crisis lasts a month or less and financial markets appear to understand this. While the US equity market has declined in recent days, it has been a relative out-performer in terms of global markets. Over the last five trading sessions the S&P 500 index lost 1.1% versus the Vanguard FTSE All-Word ex-US ETF (VEU – $77.62) with a loss of 4.7%, or the iShares China Large Cap ETF (FXI – $36.06) with a decline of 6.0%. See page 10. 

Second, over the last five trading days Brent crude futures (LCOc1 – $81.73) and West Texas intermediate crude futures (CLc1 – $74.73) rose 15% and 14%, respectively. These oil price increases will be a benefit to exporters such as Russia, Canada, Venezuela, and the US; but they increase the cost of fuel and hurt most economies around the world. The recent rally in the dollar increases the pain for many importers of oil since crude oil is priced in dollars. China, in particular, imports 70% of its consumption of oil, 90% of which is seaborne imports. This could put China in a desperate situation. However, The Center on Global Energy Policy at Columbia reported in January* that China’s recent aggressive stockpiling of crude oil suggests it could weather a multi-month disruption of imports from Iran and Venezuela. Time will tell. These two countries were the source of at least 15% of China’s imports in 2025.

Third, it should not go unnoticed that the conflict with Iran goes well beyond Iran’s borders. The combination of removing Maduro in Venezuela and potentially the radical government of Iran, could have major long-term implications for China and the global balance of power. It is a reset that stems China’s access to energy, natural resources, and its goal of economic dominance.

Fourth, the rising cost of crude oil is inflationary and the longer the conflict persists, the greater the risk to oil and natural gas production and refineries, and the more inflationary risk grows. OPEC+ has decided to unwind past production cuts, and the US and China could release strategic stockpiles, but these are small changes and sentiment could move prices higher, nonetheless. Moreover, natural gas markets are severely impacted. According to the Center on Global Energy Policy “Liquid Natural Gas (LNG) transiting through the Strait of Hormuz has been disrupted since February 28 and nearly 90% of the LNG transiting the Strait is destined for Asian markets, which will therefore be the most directly impacted. While China accounts for the largest share—approximately 25%—of the disrupted LNG volumes.” From a US perspective, this will likely postpone any future Federal Reserve rate cuts in coming months. It also has implications for long-term interest rates and the broad fixed income markets.

These inflation fears were already rising after last week’s PPI report which showed final demand rose 0.5% for the month of January and 2.9% YOY. Final demand for services rose 0.8% in January and 3.4% YOY. Conversely, final demand for goods fell 0.3% in January and rose only 1.6% YOY. The 0.5% increase in headline PPI was the highest in four months; the 0.8% rise for final demand services was the largest increase in six months and the 0.3% decline in final demand goods was the largest decrease in ten months. Note that most of January’s rise in PPI for final demand services can be traced to margins for final demand trade services, which jumped 2.5%. Trade indexes measure changes in margins received by wholesalers and retailers. We believe the concern over January’s PPI was overdone. See page 3.

Fifth, this Mideast conflict is negatively impacting many economies in the Middle East, Asia, and Europe and the longer it persists the more it will slow the global economy. Some economists estimate that every $10 increase in the price of oil reduces global GDP by 0.2%. Global air travel is also disrupted as the war has kept major Middle Eastern airports closed or severely restricted. Reuters reports that this is one of the sharpest aviation shocks in recent years. Initially, flights were halted over Iranian airspace, but this has spread to a much larger area after Dubai International Airport sustained damage during Iran’s attacks. United Arab Emirates, the world’s largest international carrier, said it suspended operations to and from its Dubai mega-hub, leaving thousands of global travelers stranded. In short, many economies in the area are put on hold, and this will impact the revenue and profits of many international companies.

However, while the war and oil prices dominate the headlines and create some near-term uncertainty, earnings season is generating another strong quarter. According to LSEG IBES, the estimated earnings growth rate for the S&P 500 for the fourth quarter of 2025 is 14.3%, and if the energy sector is excluded, the growth rate improves to 14.7%. The S&P 500 expects to see share-weighted earnings of $630.2 billion in the fourth quarter, compared to share-weighted earnings of $551.5 billion a year earlier. The LSEG IBES consensus earnings estimate for 2026 rose $0.76 this week to $315.36 and the 2027 forecast rose $0.90 to $365.44. The S&P Dow Jones consensus estimate for 2026 rose $1.60 to $312.32 and the estimate for 2027 jumped $2.59 to $362.80. This implies the market is trading at 21.6 times the IBES 2026 estimate and 18.7 times the 2027 estimate. Although some analysts feel PE multiples are rich, the forward earnings yield of 4.7% and dividend yield of 1.14% compare well to a 10-year Treasury bond yield of 4.1%. Plus, the 12-month sum of operating earnings per share shows a gain of 16.7% YOY, far better than the 75-year average of 8.1% YOY. See pages 5 and 12. In sum, strong fundamental underpinnings are why we remain a buyer on weakness.

*https://www.energypolicy.columbia.edu/where-china-gets-its-oil-crude-imports-in-2025-reveal-stockpiling-and-changing-fortunes-of-certain-suppliers-including-those-sanctioned/

Gail Dudack

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A day before President Trump’s State of the Union speech, a wave of panic rolled over the equity market. Some of this was due to a multitude of questions left unanswered by the Supreme Court after it struck down many of the administration’s tariffs. The law at the center of the case is the International Emergency Economic Powers Act, known as IEEPA, which authorizes the president to use the law “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the president declares a national emergency with respect to such threat.” A separate provision of the law provides that when there is a national emergency, the president may “regulate … importation or exportation” of “property in which any foreign country or a national thereof has any interest.” President Trump initiated tariffs early in 2025 after declaring a state of emergency and asserting that unfair trade posed a threat to the US economy. The Trump administration used tariffs to conduct foreign policy and at the same time to boost jobs and manufacturing in the US. After the Supreme Court decision, he responded by signing an executive order that imposes a 10% duty on articles imported to the US for a period of 150 days. In the interim, the administration will be looking at ways to reinstate its tariff policy.

Unfortunately, since the Supreme Court took no stand on tariffs already collected it leaves the US government open to lawsuits that will take many years to resolve. However, we ponder why companies would be suing the US for reparations if it is true, as most economists suggest, that tariffs were a “tax” on households and that they hurt the US consumer. Both cannot be true. And as we reported last week, the January 2026 CPI report showed that price indices for durables rose 0.4% YOY and nondurables rose 1.3% YOY. If tariffs on imported goods were the source of inflation, it should show up here. On the contrary, it was service sector inflation that rose 3.2% YOY and services have been the source of inflation throughout 2025.

A New York Federal Reserve study found that 86% to 94% of the burden of 2025 tariffs hurt US businesses and consumers, not foreign exporters. Yet, if this is true why did General Motors (GM – $81.29) and Ford Motor Co. (F – $14.20) report solid 2025 financials despite absorbing significant EV-related charges? Tariffs on autos were some of the first to go into effect, were some of the highest tariffs enacted, were not tied to IEEPA, and continue to be in force. And yet, General Motors generated $12.7 billion in adjusted EBIT and $2.7 billion net income, despite absorbing significant EV-related charges. Moreover, the company indicated that its core business remains highly profitable, and they expect profits will increase in 2026 despite roughly $7 billion in fourth quarter 2025 EV restructuring. In our opinion, too many economists and media commentators are quoting each other instead of looking at the actual numbers.

The other catalyst for a selling wave this week was a report by a little known firm called Citrini Research that rattled investors by envisioning a future in which autonomous AI systems – or agents – upend the entire US economy, from jobs to markets and mortgages. A warning from Nassim Taleb, author of the 2007 best-selling book “The Black Swan: The Impact of the Highly Improbable” told investors they should brace for escalating volatility as the AI rally enters a fragile phase and even bankruptcies could be ahead for the software sector. In response, International Business Machines Corporation (IBM – $229.32) fell 13% on February 23^rd.

There is another development that has investors worried and that is the vast and opaque $1.8 trillion private credit market. Blue Owl Capital (OWL – $10.73), an asset manager specializing in private debt financing, recently announced it was limiting withdrawals from a $1.6 billion fund. This sent ripples through the private credit industry. We are concerned about this as well, particularly since this is an unregulated area of finance. It is unlikely that the private debt market represents a systemic risk to the banking system, however, private credit firms have been partnering with insurers which potentially broadens the risk they represent. 

While no one likes to see the stock market go down, we see a silver lining to the recent selloff. If the stock market were in a bubble – and one could materialize someday – this kind of panic linked to concern about future fundamentals and earnings, is not typical of a market top. And as we noted last week, as the S&P approaches a milestone of 7,000 it is not unusual to see a bit of fear and consolidation. In short, this fear is good. It is also showing up in investor surveys. Last week’s AAII sentiment survey showed bullishness fell 4.0% to 34.5% and bearishness fell 1.2% to 36.9%. Bullishness is now below average for the first time in 12 weeks. Bearishness is above average for the fifth time in 12 weeks. The 8-week bull/bear index is 10.2% and neutral. The last significant signal in this indicator was a positive one in late September. See page 10.

There was a series of economic releases during the week, and in a nutshell, it showed that the economy was slowing at the end of 2025. This begins with the first estimate for fourth quarter GDP of 1.4%, which follows on the heels of the 4.4% reported for the third quarter. The weakness was concentrated in a decline in residential investment and decline in government spending, but the consumer, while still resilient, did slow consumption. Housing starts for December were down 7% YOY despite a small gain for the month. Single-family starts fell 9% YOY. Housing permits were down 2.2% YOY and single-family permits declined 11% YOY. For the year ending in December, 1.5 million housing units were completed, a decline of 8% from the previous year. See page 3.

International trade was an interesting release. In 2025, the trade deficit in goods and services was $901.5 billion, down $2.1 billion, or 0.2% from 2024. Exports were $3.4 trillion, up $199.8 billion, or 6.2%, and imports were $4.3 trillion, up $197.8 billion, or 4.8%. The oddity of 2025 was the erratic trade in nonmonetary gold — which is included in the trade numbers for goods. Much of this activity in gold trade was triggered by uncertainty regarding tariffs announced in April 2025 and the shift to hard assets. Some of these tariffs are now nullified by the recent Supreme Court decision. Nonmonetary gold imports surged to a record $80.8 billion in the first quarter of 2025; however, nearly half of this, or $34.8 billion of gold was exported in the second quarter of 2025. Notably, the $34.8 billion gold exports represented 6.5% of total exports in the second quarter — a record. See page 4. However, what gives us comfort is earnings growth. This week the LSEG IBES consensus earnings estimate for 2026 rose $0.17 to $314.62 and the 2027 forecast rose $0.54 to $364.54. The S&P Dow Jones estimate for 2026 rose $0.33 to $310.72 and the new consensus estimate for 2027 debuted at $360.22. This means the market is trading at 21.7 times 2026 estimated earnings and 18.75 times 2027 estimated earnings. Although PE multiples are a bit rich, the forward earnings yield of 4.7% and dividend yield of 1.15% compare well to a 10-year Treasury bond yield of 4.08%. Plus, the 12-month sum of operating earnings shows a gain of 16.7% YOY, far better than the 75-year average of 8.1% YOY. We remain a buyer on weakness.

Gail Dudack

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