Peace, Profits and Portfolios
After what feels like months of huge losses for investors, we saw a week of massive gains. Two out of the three major indexes broke through to new all-time highs. For reference, the S&P 500 closed the week up 4.5%, the Nasdaq finished the week up 6.8% and the Dow finished up 3.2% on the week. Positive progress on peace talks was the primary engine for this rally. Lebanon and Israel who have been in a vicious battle for weeks sent government officials to meet in Washington. This is the first time these two countries have met in over 40 years, and they actually agreed on a 10-day ceasefire. Although this is still a very much an ongoing and fragile situation it was enough to give the investing public optimism for the near future of the market. As Adam Turnquist (LPL Financial chief strategist) puts it, “Offense is taking the field and Risk appetite has returned.”
The Toll Gate
Following the development of this ceasefire, Iran’s Foreign Minister Abbas Aragchi declared the Strait of Hormuz was “completely open”. This was another key contributor to the market’s exceptional performance. Unfortunately, the following night (April 18) this decision was reversed and the strait remains closed. Iran claims that the U.S failed to lift its naval blockade (set up to ensure the strait will not generate revenue for Iran) which they viewed as a violation of the ceasefire. Of late, reports have surfaced of Iran firing at ships attempting to use the waterway and other reports of satellite tracking showing ships making actual U-turns to flee the area, signaling Iran is keeping a close tab on ships entering the waterway.
Man, Machine, and Momentum
As I mentioned the markets have been on an upward trajectory. The Nasdaq is on its longest winnings streak since 1992, this isn’t a coincidence, it’s a structural return to big tech dominance. At the helm of this big tech rebound is quite possibly Mr. Elon Musk himself and Tesla. The company is no longer being judged on how many electric cars it delivers but instead, its future as a robotics and AI powerhouse. Elon Musk announced that Tesla has completed the design of its AI5 chip, which is the “brain” intended to power future autonomous vehicles and Optimus robots. Yes that’s right, actual robots, and development is supposed to increase sufficiently after Musk dedicated a facility to develop these chips and the robots. As investors eat up the hype of these developments, Tesla is set to report their first quarter earnings on Wednesday. The real question will be, is Wall Street looking at earnings or are they looking past these figures and focusing on the progress of Optimus and robotaxi production?
Pinned by the Pump
While investors are celebrating record highs and robots, the Federal Reserve is facing a brutal reality; gas prices are holding interest rates hostage. The consumer price index (CPI) is an inflation gauge for the Federal reserve, this number jumped almost 1% from February to 3.3%, driven by energy and gas prices. This was a punch in the gut for Jerome Powell and the Federal Reserve who were hoping to make several interest rate cuts this year. Because of this CPI reading it means that inflation is moving the wrong way, effectively ruling out the chance of a rate cut. Inflation has been over the 2% target for five consecutive years now, officials at the Federal Reserve are now growing impatient. On top of all this, we are expecting a leadership chance, Kevin Warsh who President Trump nominated to run the FED by May 15 has shown a very indicative stance of pushing for lower rates. The FED is set to hold a policy meeting next Tuesday and Wednesday, giving us a great look inside the mind of these policymakers.
