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Author: Andrea

It’s Biblical… The Geek Shall Inherit the Earth

Posted on by Andrea

DJIA: 49,652

It’s Biblical… the geek shall inherit the Earth. And, apparently, space as well. The geek of the week at least last week were the Semis, what’s new? Indeed, the SMH (507) of late gives new meaning to the uselessness of terms like overbought and oversold, those measures known as mean reverting. Studies have found them as much as 80% accurate, the catch being they’re likely to lose 80% of your money. Using the spread between SMH and its 50-day moving average as a guide, buying oversold was a bit early, but lucky it didn’t become worse. The real disaster here was selling early when the ETF became “overbought.” Extreme overbought levels are a good sign as that kind of momentum tends to persist.

Rather than waiting for those mean-reverting measures to live up to their name, best to look to trend-following measures which, as the name suggests, keep you on the right side of good and evil. Choose your poison, as they say, pretty standard here is a 50-day moving average. The SMH recently was some 20% above that 50-day, more than a little stretched by historical standards. Again, a good sign as strength begets strength, but nothing goes straight up. We are certainly not negative on Semiconductors, and if so unlikely brave enough to put it in print. There is a point, though, where Nvidia (NVDA – 200) meets Newton. Who knows where or when, but the Magnificent Seven ETF (MAGS – 66)might offer a bit of a template. 

Oil stocks have performed well for obvious reasons, but the nature or depth of the strength seems to have changed. From the knee-jerk reaction buy Exxon (XOM – 155) and Chevron (CVX – 193) the strength has broadened to secondary Producers and more recently to the Oil Equipment names. We have called Transocean (RIG – 7) the canary in the oil patch in the sense that when even that goes, you know, the move is indeed broad. This seems positive and suggests, dare we say it, something fundamental rather than just knee-jerk. The other important change relates to the intangible we have observed in the market itself, the ability to ignore bad news. At the start of all of this any hint of peace sent Oil stocks lower, while recently not so much. 

For all the hoopla over Wednesday night’s earnings, you might call it a tie. In terms of job security Amazon (AMZN – 265) and Alphabet (GOOG – 382), that is, the good charts outperformed the lesser META (612) and MSFT (408).  The MAG Seven ETF seemed to reflect this, opening pretty much unchanged. Perhaps more significantly, the ETF reflects an important positive change. Following a peak back in November and real weakness starting in January, like most of Tech it turned late last month.  And like most of Tech the turn was quite dynamic, barely hesitating at the 50-day.  In keeping with the idea, nothing goes straight up, it is in a minor hesitation or what they call a flag pattern. If indeed it comes out of this to the upside, as we think likely, it should extend the advance. SMH is yet to consolidate in similar fashion but should it, MAGS could prove a template of sorts.

We have viewed the war as a two-part problem. The fury part, possibly including boots on the ground, and the economic part. The Strait of Hormuz remains closed, and Brent hit $120, the highest yet and the Fed seemed to get it as well. At its start the war was supposed to end in a matter of days, Polymarket now puts the Strait reopening at only 50-50 by the end of June.  Oil and the S&P had traded inversely at the start of this, but no longer.   Sure earnings are good, but still. Seems best not to overthink this, rather to stick with the technical basics. Wednesday was not a pretty day looking of course at the better than 2-to-1 down numbers. Bad down days happen even in good markets. It’s the bad up days, up in the averages with poor A/Ds that are the worry. Thursday saw good A/Ds in the rally, but it’s important to keep track here.

Frank D. Gretz

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BULLS VS. BEARS

Posted on by Andrea

Stocks stumbled in the first quarter of 2026 as the debate shifted from the effects of tariffs on the U.S. and world economies to one of war with Iran. In short order the S&P 500 declined nearly 20% and finished with a 4.3% quarterly loss. We should remember that at the start of the year the U.S. economy and global markets were looking at good economic growth and the prospect of falling interest rates while the market rally of three years was broadening. War, higher oil prices, and a Federal Reserve that has been reluctant to lower interest rates have put this outlook on hold.

While there has been a pessimistic shift in sentiment from where we were when 2026 started, both a bullish and bearish outcome deserve consideration. The bearish case primarily rests on the doubling of oil prices in less than two months and the crippling effect it can have on the world’s economy. Any sustained closure of the Strait of Hormuz—through which 20% of the world’s energy travels—will continue to elevate the price of oil, natural gas, and fertilizer, as well as global shipping costs. This in turn will affect consumer sentiment and spending, and corporate profit margins. The bears will also point to a rise in interest rates which, in part, has been caused by the deterioration in private credit with large sums of investor assets trapped in vehicles of uncertain quality and limited liquidity.

Underlying the bullish argument is that a lot of bad news is already in the market and discounted. Historically, higher oil shocks have ended the business cycle when earnings were decelerating, and that is not the case today. Data would suggest that GDP growth was running at approximately 4.5% in January while EPS growth was 14% year-over-year and accelerating. The bull case also relies heavily on the AI infrastructure buildout which shows  no evidence of softening and may also be accelerating while consumers continue to spend.

In the short term, with Hormuz constraints easing, whether through diplomacy or something else, the markets could be underpricing a fairly significant snapback.

April 2026

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FOMO on Steroids Thanks to TACO

Posted on by Andrea

DJIA: 49,310

FOMO on steroids thanks to TACO… it’s perfectly clear. What does it say when you can define a market in anagrams? At least they haven’t gotten around to CAPE. That would be Shiller’s Cyclically Adjusted Price-to-Earnings Ratio, where both elevated yields and valuations offer a worrisome picture. More friendly is the market trend with the S&P now back on the good side of the 200-day. And despite less than settling news, the VIX is back below 20, a more calm and stock-friendly level. Always important is participation. The averages were down all day on Monday while the advance/decline numbers were positive all day. Granted that’s unusual, and thanks to strength in the multitude of Financial and Oil shares, but how you get there doesn’t much matter. It’s simply important that the average stock gets there.

We have alluded to the market’s ability to ignore bad news, calling the “failure to fail” a positive sign. We are not completely convinced, but something similar could be happening in terms of the Oil stocks. With peace such as it is at hand, we’ve noticed much of the Oil sector doesn’t seem to believe it, or doesn’t seem to care. In other words, the stocks have held together surprisingly well. The non-caring, of course, has to do with the non-ownership here. If you don’t own them, why would you care, and you’re not about to swap your Nvidia (NVDA – 200) for Exxon Mobil (XOM – 151). Meanwhile, it’s still Tech’s world, but don’t tell that to GE Vernova (GEV – 1149) Wednesday, Caterpillar (CAT – 835) Thursday or Bloom Energy (BE – 238) last week. Quanta Services (PWR – 634) is another of these power builders that looks attractive.

Frank D. Gretz

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US Strategy Weekly: Happy TACO Tuesday!

Posted on by Andrea

President Trump’s two-week ceasefire with Iran, initially scheduled to end Tuesday, April 21, 2026, was just extended minutes ago at the request of Pakistan to allow Iran to submit a unified peace proposal to the US. We doubt that Iran can produce a unified proposal. Leadership is in disarray and if they could produce a unified proposal, we doubt it would be one that the US could accept. This leaves financial markets in limbo.

Uncertainty is a constant for investors, but this time the uncertainty regarding the Iranian conflict has immediate implications for investors and the fallout has and will continue to impact markets around the globe. In recent days, oil prices tumbled and equity prices rose to record highs in anticipation that peace talks would be successful. This must now be reassessed. The near-term risk of reversals in both trends is high, and we would not make big investment decisions in the days ahead.

Iranian leaders are patient and believe they will win. They are not democratically elected and therefore do not need to please the Iranian people. They believe they have time on their side as compared to their elected adversaries. But in our view, the request from Pakistan to wait for a unified proposal is a thinly veiled stall tactic that will not last for long. Many world leaders have fallen prey to the media’s message of TACO (Trump Always Chickens Out) and believe President Trump will compromise or back down from his demand of no nuclear weapons. But this is foolish. At present, Iranian leadership feels the Strait of Hormuz is their golden bargaining chip; however, the US blockade of their blockade has turned that asset into a liability. Iran relies on the strait for both its necessities and supplies (such as the sanctioned Iranian cargo ship Touska seized in the Gulf of Oman by the US and carrying “dual use” cargo after traveling through Chinese ports) as well as the way to export its oil (their main source of revenue). The US is preventing any ships from docking or leaving Iranian ports. In addition, the Iranian blockade of the Strait of Hormuz has inspired countries to find new sources of petroleum and fuel. Countries like Saudi Arabia are finding alternative ways to export oil. Eventually, the Iranian blockade may backfire.

Iran, i.e., the Islamic Revolutionary Guard Corps (IRGC), believes it can endure economic and military pressure longer than the United States. And unfortunately, the IRGC is emboldened by statements such as the one from the International Energy Agency (IEA) opining that this conflict is creating the worst energy crisis ever faced by the world. (Someone clearly did not live in the US during the Oil Embargo of the 1970s!) However, President Trump has demonstrated that he does not make idle threats. If Iran proves to be unable or unwilling to negotiate in good faith, we believe the odds of renewed bombing is extremely high. Again, we would suggest not making big decisions this week.

Meanwhile, the ceasefire between Hezbollah and Israel has been breached by Hezbollah, just ahead of US-mediated talks between the Israeli and Lebanese governments scheduled for later this week. Once again, this creates uncertainty because Israel welcomes any excuse to continue to unarm Hezbollah by force.

Sock Puppet

In other news, Kevin Warsh, nominee to chair the Federal Reserve, appeared before the Senate Banking Committee for his confirmation hearing. And despite being labeled a “sock puppet” by Senator Elizabeth Warren, Warsh appears headed for confirmation. His testimony included interesting comments including monetary policy independence is essential, reforms are necessary for monetary policy and Fed communications. In terms of policy, Warsh noted that interest rate levels impact all people in the US whereas increasing the Fed’s balance sheet benefits only stockholders and the wealthy. He also implied that Federal Reserve Board members should not be too transparent in terms of policy direction. (We agree! A transparent Federal Reserve inspires greater speculative activity, and this has been rampant in recent years.)

Economic News

According to the April Beige Book, the economy advanced modestly as the first quarter of 2026 ended with eight of the 12 Federal Reserve districts reporting modest growth. Atlanta, Cleveland, and Richmond were among the best performing regions with New York reporting a small decline in activity. Most importantly, the report made it clear that the job market is best described as a “low fire, low hire” environment.

The NAR pending home sales index rose from 72.1 in February to 73.7 in March but continues to languish below 2025 levels in all regions except the South. There was modest improvement in the Northeast and South, but sales fell in the Midwest and West. Builder confidence for newly built single-family homes fell 4 points in April to 34, the lowest level since September 2025. Current sale conditions fell 4 points to 37, sales expectations in the next six months were down 7 points to 42 and traffic of potential buyers fell 3 points to 22. Overall, the residential real estate market remains in the doldrums. See page 3.

Retail sales, when not-seasonally adjusted, usually jump in December — for holiday sales — and in March – after a post-holiday spending slump. March 2026 retail sales increased nearly 16% month-over-month (MOM) and 4.5% year-over-year (YOY). Retail sales excluding motor vehicles & parts jumped 15.5% MOM and 6.3% YOY. Motor vehicles & parts sales soared 17.7% MOM but fell 2.3% YOY. See page 4. March’s largest increases were seen in gasoline stations where sales increased 18.3% YOY and nonstore retailers where sales increased 13.2% YOY. However, clothing, electronics and appliances, building materials, and sporting goods sales were also strong. In sum, as noted in the Beige Book, the economy demonstrated steady growth in the first quarter.

Fundamentals and Technicals

The LSEG IBES consensus earnings estimates continue to rise and for 2026 increased $1.45 this week to $325.18. The 2027 forecast rose $1.26 to $379.20 and the 2028 forecast rose $2.10 to $427.91. This means the S&P 500 is currently trading at 21.7 times this year’s earnings, 18.6 times 2027 earnings and 16.5 times 2028 earnings. The equity market is not as cheap as it was in late March, but these PE multiples are reasonable valuations even with the equity market just below all-time highs. See pages 5-6. Year-to-date the Dow Jones Transportation Average leads all indices with a gain of 37.9%, followed by the Russell 2000 with a gain of 11.4%, the Dow Jones Utility Average with a gain of 6.1%, the Nasdaq Composite up 4.4%, the S&P 500 up 3.2%, and the Dow Jones Industrial Average up 2.3%. Not surprisingly, the NYSE cumulative advance/decline line hit a record high on April 20, 2026 and the 10-day average of new daily highs jumped to 315. These are all solid signs for the market in the longer term. See pages 7-8.

Gail Dudack

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From Intangible… to Tangible

Posted on by Andrea

DJIA: 48,579

From intangible… to tangible. The market had shown an ability to ignore bad news, a failure to fail as we call it. While not quantifiable, we have always found it a hopeful sign and in this case it seems so. Last week and this one so far have signs that indeed are quantifiable. How well rallies begin usually says a lot. For the NASDAQ 100, stocks above their 10-day average have cycled from less than 30% to more than 70%, a change with very positive implications. The drop in the VIX or CBOE Volatility Index is another positive sign. Everyone thinks a spike there is important and it is, but its subsequent decline says the panic is over. A spike in various put/call ratios also is indicative of a panic now passed. And, more basically, the S&P is back on the good side of its 200-day moving average.

Most impressive in all of this was Monday’s market. Up 300 with 2-to-1 advancing issues is always a good day. Doing so after negative news and a 500-point down opening seems particularly impressive. It had both the intangible of ignoring bad news, and the tangible of good numbers. Given the ongoing poor news background, it almost seems difficult to explain. Yet, it is in its way quite simple. The market is a discounting mechanism and when the market discounts something it doesn’t usually keep doing so. That said, we don’t want to get too far ahead here. Based on our vast military experience as a wheel and track vehicle mechanic in the 7th Regiment on Park Avenue, we wonder if we may not yet see boots on the ground. That would likely cause another downside jolt but also another buying opportunity.

 Meanwhile, it’s Tech’s world―the rest seem just visiting. That was the look at the end of last week. Interestingly, a stock like Broadcom (AVGO – 399) was one of the worst of those charts a couple of weeks ago, and now is among the best. The group is not just good, it seems to be improving. The dark side of Tech, the Software stocks, had their best day in some time on Monday. Down the most often turns to up the most but still, that move seems a pleasant surprise. When even the bad stop going down, that’s not bad. To keep some perspective, Oil stocks are unlikely yet over loved or over owned. And after their quick 15% drop from a one-year high, historically they’ve proven a buy.  And these days, Oil is a bit of a hedge.

Have you seen the UFO? Not the one you see after a couple of martinis, the Procure Space ETF (UFO – 55).  Space is hot and has been for a while, but another obvious push could come from the SpaceX IPO. We understand EchoStar (SATS – 133) participates there and just recently, Amazon (AMZN – 250) and Globalstar (GSAT – 80) cut a deal. Most of the charts here are good, as you might imagine just from a look at the UFO chart itself. We still like the Power Builders like GE Vernova (GEV – 979), and Bloom Energy (BE – 210) lived up to its name Tuesday on another deal with Oracle (ORCL – 179). Power is not the only issue facing AI. There also seems to be a communications problem. Apparently 5G is a few Gs short of what is needed. We have liked Nokia (NOK – 10) for a while, and to name drop, they have a deal with Nvidia (NVDA – 198). Ericsson (ERIC – 12) also looks good.

We have thought of all of this as a two-part problem. The first being the fury, both in terms of the war and the market. That seems discounted. The second is the economic consequences, yet unknown but surely consequential. Also, we start here with rich P/Es and high yields, not a positive combination. The market’s recovery has been impressive. It might be explained by a combination of FOMO and TACO, to drive our compliance guy nuts. The “fear of missing out” in this case is on steroids. It follows last year’s post Liberation Day rally when “Trump always chickens out.” That’s a memory that’s hard to forget. The stock market these days is much different from those most remember. They like to call it momentum, but think of it as extrapolation — what happened today will happen tomorrow.

Frank D. Gretz

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US Strategy Weekly: Russell versus the MAG 7

Posted on by Andrea

The first few hours of the US blockade of the Strait of Hormuz — with US warships located outside the strait in the Gulf of Oman — resulted in only eight vessel crossings. This was touted as a disaster by some politicians since it is a mere fraction of the 130 per day that was typical a few weeks ago. However, war-risk insurance costs remain high, according to insurance experts, and this will take time to change. Nevertheless, the US blockade may be less about opening the strait to global commerce and more about keeping Iran from exporting oil to China and other friendly nations. In short, the blockade may be meant to pressure Iran economically, to stop Iran from exporting oil, and to reduce Iran’s ability to fund more weapons. Financial markets appeared to understand this strategy better than news sources and WTI light crude oil futures remained relatively unchanged at $91.48 but equities rallied and regained all of their year-to-date losses.

The year-to-date performances of various equity indices is revealing. From best to worst these are: the Dow Jones Transportation Average up 22.5%, the Dow Jones Utilities Average up 9.6%, Russell 2000 index up 9.0%, the Wilshire 5000 composite up 2.25%, the S&P 500 index up 1.8%, the Nasdaq Composite index up 1.7%, and the Dow Jones Industrial Average up 1.0%. The huge advance in the Dow Jones Transportation Average appears counterintuitive given the recent increase in fuel costs, but this benchmark now includes many logistics and trucking firms that have been helped by a healthy economy. Plus, talk of a possible merger between American Airlines Group Inc. (AAL — $12.13) and United Airlines Holdings, Inc. (UAL – $97.20) helped to boost the index this week. Utility stocks are up this year due to an aging infrastructure coupled with a massive power demand from AI data centers.

The 9% gain in the Russell 2000 index is the most interesting to us. We believe this performance reflects the resilience of the US economy and the fact that this index is heavily weighted to smaller domestically based companies versus the large international companies that dominate the S&P 500, the Dow Jones Industrial Average and Nasdaq Composite. As we noted several weeks ago, while most analysts focus on the risk of inflation due to higher energy costs, they miss the point that the higher cost of oil, which is based in US dollars, is a bigger burden to non-dollar, non-oil-producing countries than it is to Americans. In short, we worry less about the US and more about global growth. In our view, the US is the global economic leader and therefore, a relative safe haven for investors. Equally important is the fact that some of the “magnificent seven” stocks have recently encountered skepticism that the massive investment in AI infrastructure will continue and/or reap the financial benefits needed to support sky high valuations. As a result, they have been the underperformers this year. The good news is that valuations have become more reasonable. And from an historical perspective, it is bullish that this group of stocks has encountered skepticism. The alternative would have been a mania for the MAG 7, a roaring stock market bubble, followed by an inevitable bear market!

What we are Watching: Bank Earnings

In terms of 2026 price performance, the financial sector has been one of the worst performing sectors this year due to a variety of issues including President Trump’s urging to banks to cap credit card interest rates at 10%, a weak housing market, a sluggish auto loan market, and the risk of another wave of inflation in 2026. Risk of a crisis in the private credit market has also weighed heavily on the financial sector. But since banking is at the heart of all economic cycles, it is important to have solid leadership from this sector to support a healthy bull market cycle. For all these reasons, first quarter earnings season will be important and enlightening for the banks. Investors should watch not only for earnings but to see if loan loss reserves increase, which we expect will materialize due to recent defaults in software company loans. To date, earnings reports from Wells Fargo & Co. (WFC – $81.70), JPMorgan Chase & Co. (JPM – $311.12), and Citigroup Inc. (C – $129.58) revealed strong trading revenue across the board, but most companies had a cautious view emphasizing future economic risks. Goldman Sachs Group Inc. (GS – $909.63) reported record revenue in equity trading but weakness in fixed income, currencies, and commodities. More bank earnings, including Bank of America (BAC – $53.35), will be released later this week. Price action in these banks has been mixed in response to earnings releases; yet we believe the financial sector may be poised to become a relative outperforming sector if the Iranian conflict gets resolved. This would be bullish for all equities.

Technical Indicators Improve

There was some improvement in our technical indicators this week, in particular the 10-day average of daily new highs was 163 and the 10-day average of daily new lows fell to 90. This combination of daily new highs above 100 and new lows below 100 shifts this indicator from neutral to positive. The last time the NYSE cumulative advance/decline line made a new high was on February 26, 2026, but it is currently a net 1,865 advances away from making a new record. The possibility of a new high in this indicator, coupled with the outperformance of smaller capitalization stocks is favorable. In sum, we remain a buyer on weakness. See page 10.

Inflation Insights

Inflation picked up in March as expected and headline CPI jumped from 2.4% YOY to 3.3% YOY. Nevertheless, core CPI remained relatively unchanged, inching up from 2.5% YOY to 2.6% YOY. Note that both CPI indices remain below the long-term average of 3.5% YOY. PPI indices were more directly impacted by soaring oil prices and the PPI for finished goods jumped from 1.6% YOY in February to 4.1% in March. Core PPI for finished goods remained unchanged at 3.7% YOY. The PPI final demand index, the most watched index, rose from 3.4% YOY to 4.0% YOY. This puts all these indices above the long-term average of 3% YOY. See page 3.

There is a growing disparity between core PPI and core CPI at the moment, and this is a relatively rare occurrence. Similar disparities occurred in 1973-1974 during the Oil Embargo, in 2008-2009 during the financial crisis, and in 2022-2023 when the Biden-Harris administration focused on reducing fossil fuel reliance, hindered domestic oil & gas production, and paused new LNG export terminals. History shows that the CPI is heavily influenced by the PPI index but does not always have the same extremes. A chart combining CPI, PPI, and WTI oil prices is important. See page 4. Although the high price of fuel is a big negative for households, note that the current 66% YOY increase in WTI prices is not that unusual and not as extreme as the March 2021 to March 2022 period when oil prices rose 237% YOY as of April 2021 and averaged gains of 97% YOY for the subsequent 12 months! The NFIB small business optimism index fell to 95.8 in March, matching the low seen in April 2025, and sliding below the long-term average of 98.0. The uncertainty index rose to 92.0, the highest since the 100 seen in September 2025. There has been an historical correlation between small business optimism and the inverse of the unemployment rate. Since early 2023, the unemployment rate has been slowly rising, and small business optimism has been slowly falling. In other words, the trend is not new or extreme, but it is worrisome. Our biggest concern for 2026 continues to be weakness in the job market. The next employment report is scheduled for Friday, May 8, 2026. See page 5.

Gail Dudack

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There’s Technical Data… and Technical Intangibles

Posted on by Andrea

There’s technical data… and technical intangibles. Both matter, and in this market, it was the latter that caught our attention. How could things look so dire, yet the market hold together? How could this news-driven market suddenly seem to ignore bad news? And to be clear, the market has done more than just hold together. Being up 160 Dow points Monday―the day before oblivion―is one thing. Being up with a plurality of advancing stocks is another. The intangible here is what we used to call “the failure to fail.” This market had every reason to go down, yet did not. We know tomorrow is another day, but this seems worthy of note. It’s hard to say all the bad has been discounted, but maybe at least the fury part? When the market ignores bad news, it’s good to remember ― it’s the market that makes the news.

The conflict and its consequences are just that, a two-part problem. It reminds us of first aid training from the Boy Scouts or the army, is there a difference? First, you start the breathing and then stop the bleeding, in this case stop the fighting. Then you treat the wound and treat for shock, in this case the consequences of the fighting. If the fighting is indeed over, what does that mean for the shortage of jet fuel? And what does that mean, in turn, for Airline earnings?   Stocks sell at fair value, whatever that is, once on their way to more overvalued, and again on their way in turn to more undervalued. It’s the trend counts.

Up some 1300 Dow points with 5-to-1 advance/decline numbers, it’s hard to call Wednesday a bad day, and we won’t.  Literally, however, the day was over in the first five minutes, the rest spent flatlining.  Both the S&P and NASDAQ 100 went nowhere all day and closed slightly lower. Even the Semis, where some stocks had impressive moves, on the whole simply flatlined. It’s not to say this is necessarily bad, it is to say this is the way it is in these news driven markets. The money is being made at night rather than during the day. For a long-term investor, of course, who cares when the money is made as long as it’s being made. They say never buy an up opening in a bad market, apparently it’s even hard to buy an up opening in a good market.

Frank D. Gretz

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US Strategy Weekly: Did the Deadline Work?

Posted on by Andrea

World News

We go to print in the midst of a chaotic day of news flow and just ahead of an important deadline. President Donald Trump set a cutoff of 8 pm ET Tuesday April 7, 2026, for Iran to open the Strait of Hormuz or face destruction of major bridges and power plants. And once again, President Trump’s word choice, saying he might “destroy a whole civilization” is dominating headlines, instead of the importance of the 8 p.m. deadline. More importantly, an Iranian official, part of a regime that has perpetually cried “death to America” responded to Trump’s threat by issuing a video calling for all young people, athletes, students, and professors to form “human chains” around power plants. Once again, Iran demonstrates a strategy that preys on Western morality while showing a complete lack of respect for any and all, including Iranian, lives. On a more positive note, the Iranian-backed Iraqi militia Kataib Hezbolla said it released the kidnapped American journalist, Shelly Kittleson. Some hope this might be an indirect peace offering.

In the background, an investigation is underway to determine who leaked to the press that an American airman was missing after his fighter jet was shot down over Iran on Good Friday. Sadly, this is another example of a lack of morality and respect for human life here. This leak clearly put an American pilot’s life and the lives of all in the mission to rescue him, at great risk.

A Bahrain-led resolution aimed at reopening the Strait of Hormuz failed at the UN on Tuesday due to opposition from Russia and China. Breaking news suggests US-Israel was already striking Iran’s oil, rail, and bridges ahead of the deadline. Overall, there was great uncertainty regarding what may happen overnight as another Iranian official told Reuters News that Iran was ready for peace and war. But in the last few minutes, at the end of the trading day, financial markets reacted to news that Iran was responding favorably to a Pakistan request to secure more time for diplomacy. Reports are that President Trump has agreed to a two-week ceasefire as long as the Strait of Hormuz is immediately opened. Equity indices closed higher, oil ratcheted lower in late trading, and the 10-year Treasury bond yield eased to 4.3%.

Economic News

There were several important economic news releases this week. The most important of these was the employment report for March. The headline of the report indicated an increase of 178,000 new jobs in the month and a decline in the unemployment rate from 4.4% to 4.3%. But there was a lot to discover beneath the surface. Although the report was a positive surprise showing more than three times the consensus estimate, revisions eliminated 45,000 jobs from previous reports. The unemployment rate fell from 4.4% to 4.3% but this was due to a decline in the civilian labor force. The household survey, which is the source of the unemployment rate, revealed a decrease in both the number of people employed (a decline of 64,000) and a decrease in those unemployed (a decline of 332,000), the sum of which is the civilian labor force. Note in the table on page 3, that while March showed an increase of 178,000 jobs in March, employment grew only 260,000 from a year earlier. This suggests that 2026 is a relatively flat and/or weak job market. Our favorite jobs indicator is the year-over-year change in total jobs. In March there was a mere 0.16% year-over-year increase in jobs in the establishment report and negative 0.4% year-over-year change in the household survey. This is important to monitor since negative growth rates in jobs are indicative of a recession!

When we look at a long-term monthly chart of job growth in the establishment survey it shows that employment recovered from the decline seen during the pandemic but has grown very little since 2023. The 6-month rate of change in both surveys displays how volatile the household survey can be compared to the establishment survey, but it also shows the deceleration in job growth in both surveys since 2023. See page 4. The introduction of AI is expected to reduce job growth and may already be impacting the employment environment. On the other hand, the deportation of many illegal migrants may be an offset for a weak job environment. Nevertheless, the employment landscape is languishing and that is an economic risk.

The ISM manufacturing index inched higher to 52.7 in March from 52.4 in February and marks the third month in a row that the index has been in expansion territory above 50. It was also the fifth month in a row that the production index remained above 50. These are by far the best readings since manufacturing weakness began in early 2022. But unfortunately, the biggest increase in the manufacturing survey was seen in prices paid, a jump from 70.5 to 78.3. See page 5.

The ISM nonmanufacturing index was 54.0 in March down from 56.1 in February but still showing an expansion. Yet, the report was mixed with business activity declining and new orders rising. The employment index has been weak in the manufacturing survey since 2022 and has been erratic in the nonmanufacturing survey. Combining the two ISM employment indices, we can find a read on the overall economy and after March’s weakness this indicator is right at the bottom edge of neutral. It too is signaling a warning of job weakness. See page 6.

Retail sales for the month of February grew 3.7% YOY, the best pace in five months. Retail sales less autos and gasoline increased 4.1% YOY versus 4.5% YOY in January. In the month of March, total auto sales were 16.67 million units, up 3.4% for the month but down 9.1% YOY. In March, imported car unit sales were down 15% YOY, domestic car sales were down 16.5% YOY and domestic truck sales were down 4.8% YOY. The peak for auto sales was 18.6 million units in April 2021, during the pandemic when airlines were practically shut down. See page 7.  

Fundamentals

Many investors wonder why the equity market has performed as well as it has in the face of the Middle East conflict and a huge jump in energy prices. Our answer is earnings! This week the LSEG IBES consensus estimate for 2026 S&P 500 earnings rose $0.28 to $323.02 and the 2027 forecast rose $0.23 to $377.35. IBES also initiated a 2028 forecast of $425.95. The S&P Dow Jones consensus forecast for 2026 rose $0.65 to $320.40 and the estimate for 2027 jumped $1.33 to $374.36. This means the market is trading at 20.5 times the IBES 2026 earnings estimate and 17.5 times the 2027 estimate, one of the lowest multiples since April 2025. Although interest rates have been rising, the forward earnings yield of 5.1% and dividend yield of 1.2% compare well to a 10-year Treasury bond yield of 4.35%. Plus, the 12-month sum of operating earnings shows a gain of 17.1% YOY, far better than the 75-year average of 8.1% YOY. These solid fundamental underpinnings are supporting equity prices despite the uncertainty of the Iran conflict. Technical indicators are little changed this week. The NYSE cumulative advance/decline line has not made a new high in five weeks, indicative of a correction and the 25-day up/down volume oscillator is at negative 1.25, little changed from last week. The AAII 8-week bull/bear spread fell to negative 10.3, the first positive reading since September 2025. In sum, we remain cautiously bullish.

Gail Dudack

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The Market is Like the Mets… You Gotta Believe

Posted on by Andrea

The market is like the Mets… you gotta believe. And they do! The first hint that peace is at hand, and they’re up and running. Up openings haven’t proven fruitful up until now, but Tuesday got a second wind when “notes” were exchanged. Hey, that seems worth 1000 Dow points. What these rallies do is abort any real washout. The VIX hasn’t really spiked, stocks above their 200-day are at a modest oversold level of just 40%. Then, too, not every decline ends in a washout. And, more subjectively, at lows they get around to everything, so to speak, and that was the look Monday. GE Vernova (GEV – 895) was the best chart around three days ago, and then dropped 100 points. A friend used to quip he was a good trader, all he needed was a bull market. Until Wednesday we had all become really bad traders, but good short sellers.

Most stocks lifted Tuesday and Wednesday, keeping the advance-decline numbers healthy. Gold stocks were strong for a change, and that could well continue. A few weeks ago GDX (96), the Gold Miners ETF, saw only 10% of its components down 20% from their highs. Last week all were 20% below their highs. If that sounds washed out, it is. Meanwhile, the Russell 2000 had a rapid 10% pullback from a three-year high. According to Sentimentrader.com this specific pattern has led to poor performance over the next 2 to 3 months. It seems, too, that more than 30% of the Russell holds revolving debt, and $360 billion of that expires this year. It’s likely much of that was around zero percent, hard to come by these days.

Frank D. Gretz

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US Strategy Weekly: Echoes of April 2025

Posted on by Andrea

US equities had an impressive rally on the last day of the quarter, with the Dow Jones Industrial Average jumping 1125 points, boosted by reports that President Trump may be willing to end the military campaign against Iran without reopening the Strait of Hormuz. However, there were conflicting reports from the Wall Street Journal and CBS News regarding this issue. There were also rumors that Iran’s president is prepared to discuss a process to end the conflict. Iran’s foreign minister Abbas Araghchi, told Al Jazeera TV he is exchanging direct messages with US envoy Steve Witkoff, but denies this constitutes “negotiations.” (Smoke and mirrors?) But behind the scenes, the US targeted a huge Iranian ammunition depot in Isfahan and Iran responded by threatening to attack Americans on Saudi Arabian soil listing 18 American businesses, including Microsoft Corp. (MSFT – $370.17). The US State Department warned Americans in Saudi Arabia to shelter in place since hotels and other gathering points including US businesses and US educational institutions could be potential targets. In the background, Israeli military reports it has struck a senior Hezbollah commander and a senior fighter in separate attacks in Beirut. And OPEC announced that oil output plunged by 7.3 million barrels per day in March to 21.6 million barrels per day, the lowest output level since June 2020, during the pandemic.

All in all, it was a busy and confusing day of news with both the US and Iran issuing threats. Defense Secretary Pete Hegseth said the next few days could be decisive (we agree) and he warned Tehran that the conflict would intensify if it did not make a deal. Equity prices rose on hopes that an end to the conflict was within reach, but it is important to note that energy markets were less enthusiastic. The key issue for the financial markets is the price of energy and here prices actually moved higher. The Brent crude May contract (LCOc1 – $118.31) closed up 64% and WTI intermediate crude contract (CLc1 – $101.93) rose 53% for the month of March. Not surprisingly, the average price for a gallon of gasoline soared over $4 in the US. Clearly, energy prices are reaching pressure points not only in the US but globally.

Economic and Political Pivot Points

Not only did energy prices not celebrate along with equities, but long-term Treasury yields declined, not because inflation is declining, but because the risk of recession increases the longer crude oil prices remain high. Without a resolution of Middle East turmoil this week, expect more talk about recession, not only for the US but globally. Pressure from higher oil prices is also straining US relations with NATO nations as seen by Spain closing its airspace to US jets, Italy denying military aircraft to land at a base in Sicily and Poland retracting plans to relocate its Patriot batteries to the Middle East.

Technical Pivot Points

In our view, equity prices may have been boosted less by rumors and more by end of the quarter window dressing of portfolios by institutional investors. Several technical indicators are also at interesting pivot points. Our 25-day up/down volume oscillator is currently at negative 1.22, down from last week, and one of the lowest readings since early April 2025. See page 6. Another parallel to April 2025 is seen in the AAII sentiment survey where bearish sentiment hit 52% on March 18, 2026, the highest bearish sentiment since April 30, 2025. In short, the stock market entered the week revealing several extremes that suggested it was ready for an oversold bounce. Our only concern is that while the market resembles the extremes seen in the April 2025 tariff panic, the Iran conflict may be less easy to manage than tariffs. This is the risk.

The Dow Jones Industrial Average, the Nasdaq Composite Index, and the Russell 2000 all fell into correction territory in recent sessions and were down at least 10% from their record highs in late March. The S&P 500 did not register a decline of 10% or more, but more than half of its sectors did reach correction territory. Nevertheless, the end of the quarter bounce reversed some of these losses and the year-to-date performances of the indices ended more mixed than negative. Year-to-date, i.e., quarter-to-date results were losses of 7.1%, 4.6%, and 3.6% in the Nasdaq Composite, S&P 500, and Dow Jones Industrial Average, respectively and gains of 0.6%, 7.2%, and 8.5% in the Russell 2000, the Dow Jones Transportation Average, and the Dow Jones Utility Average, respectively. There was clearly a wide range of performances among the indices with losses concentrated in high PE and technology-based stocks.

And the underlying action of sectors was also mixed. This is seen on page 10 where S&P 500 year-to-date sector performance shows six sectors outperforming the index and five underperforming. The range of performance reveals the dichotomy in the marketplace with the energy sector up over 37%, followed by materials up 9.3% and utilities up 7.5%. While at the bottom, the financial sector is down 9.8% year-to-date, followed by consumer discretionary down 9.3%, and technology off 9.3%. To date, 2026 has been a year that underscores the lesson that a diversified portfolio is the best long-term strategy.

Fundamentals Also Rhyme

The LSEG IBES consensus earnings estimate for 2026 rose $2.26 this week to $322.74 and the 2027 forecast rose $4.62 to $377.12. The S&P Dow Jones consensus forecast for 2026 rose $0.16 to $319.75 and the estimate for 2027 fell $0.47 to $373.00. On March 30th, the market was trading at 19.7 times the IBES 2026 estimate and 16.8 times the 2027 estimate, the lowest multiples since April 2025. Although interest rates have been rising, the forward earnings yield of 5.25% and dividend yield of 1.2% compare well to a 10-year Treasury bond yield of 4.3%. 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. See pages 4 and 5. This is the main reason that we remain bullish about the longer-term outlook.

Still, the risk of a recession is rising, and this could make Friday’s employment report for March a market moving event. There are already signs that the residential housing market continues to decelerate, and a weak job market would add to the problems that higher energy prices present. Given the fluidity of the conflict in the Middle East, and the possibility that the jobs report could be less than the consensus expectation of a modest rebound of 60,000 to 80,000 jobs in March, we remain near-term cautious. Separately, The Conference Board’s consumer confidence index rose from a revised 91 in February to 91.8 in March, yet it continues to linger below the long-term average of 96. March’s increase was led by the present situation index, which rose slightly from February’s 5-year low. The expectations index was 70.9, down from 72.6. The University of Michigan sentiment survey was 53.5 in March, down from 56.6 in February with weakness concentrated in the expectations index, which was 51.7, down markedly from 56.6. The report said that about one-third of all responses came in before the start of conflict in the Middle East and since energy prices have increased dramatically it is normal to expect that sentiment has deteriorated. However, we would not rely on sentiment indices because they have been forecasting a recession for four consecutive years. In sum, they have been of little use for investment decisions or for predicting the economy. See page 3.

Gail Dudack

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