Economy
The US lost 92,000 jobs in February according to Friday's report from the Labor Department. The expected number was a gain of 50,000, so the actual results were very disappointing but reflects just how muddy the picture is when observing the state of the economy. Throw the Iran war in to the mix, and things get even murkier. In a vacuum, a weak jobs report might lead one to believe the Fed will be quicker to cut rates. However, current Chair Jerome Powell has been publicly bashed by President Trump for being too slow to reduce interest rates, and with only a few months remaining in his position, he may be unlikely to push for a rate cut at one of his final two Federal Open Market Committee (FOMC) meetings. The path to a rate cut looked to be clearing for incoming Chair Kevin Warsh, but with oil prices spiking in light of the Iranian conflict, the concern shifts from a weak labor market to a possible reacceleration of inflation. When oil prices rise, there exists the potential for costs to rise as an after effect. If inflation were to pick up, it could force the Fed (even one led by a Trump appointee) to take a rate cut off the table despite weakness in the labor market. The odds of a rate cut by June have decreased from over 70% a month ago to just 33% today.
Markets
The S&P 500 fell by 2% this week as the market reacted to the beginning of what could be an extended conflict with Iran. Fears of AI taking over the software industry seamed to take a backseat to a oil price shock. The initial market decline was sharper overseas than it was in the US, perhaps because of the dependence of foreign nations on Middle East oil. Year-to-date gains were wiped away from both US and European stock markets this week. Despite how poor sentiment currently is with tepid job growth, sticky inflation, and war breaking out, the S&P 500 is only 3.5% off it's all-time high. With oil prices surging 35% in the last week, the market's decline of just 2% leaves us with the feeling that it could have been (perhaps should have been?) a lot worse.
What We're Reading
- Jobs Report, Oil Surge Leave Fed Gritting Its Teeth- WSJ
- Ten Rules for Dealing with Uncertainty- Ben Carlson
Have a great weekend.
Dogwood Wealth Management