US Strategy Weekly: Did the Deadline Work?

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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