Hope you are all doing well. The early-week momentum didn’t hold. The major U.S. markets are still on edge as the Iran conflict enters its fourth week. The indexes finished the week down roughly 2%. It’s the market’s fourth negative week in a row. The S&P 500 is 6.8% below the record high it reached in late January. The NASDAQ is 9.6% below its October 2025 peak. That is just shy of the 10.0% threshold for a correction. If you have growth stocks in your traditional IRA, now is a good time to consider converting some of those shares to a Roth. Chuck Norris passed away this week. If you have never seen the fight scene between Norris and Bruce Lee in The Way of the Dragon, it is a must-watch. Norris has been an endless source of tough guy memes for the past 20 years. I have broken down this week’s update using some of the more memorable memes.
There has been no safe haven. All three major investment groups—stocks, bonds, and metals—took a punch this week. Gold prices dropped nearly 10%, falling for the third week in a row and interrupting a precious metals rally that dates to early 2025. Gold was about $4,500 per ounce on Friday afternoon. That is down from the record high of more than $5,500 set in late January. Gold prices are declining due to a higher interest rate outlook. Bond prices also fell sharply this week. Yields hit their highest levels since last year. Primarily due to rising inflation fears sparked by the conflict with Iran.
Markets believe inflation is the bogeyman that will scare central banks out of cutting rates. The U.S. Federal Reserve kept its key interest rate unchanged for the second meeting in a row. However, policymakers maintained their forecast for one additional rate cut this year. On Thursday, central banks in Japan, England, Sweden, and Switzerland also kept their key rates intact. Historically, central banks have not made knee-jerk reactions to temporary spikes in oil prices. Inflation is running above the Fed’s target. That’s not new; it has been above its target for the past five years. Markets aren’t pricing in any more rate cuts this year. I still believe the Fed will cut twice this year. Nobody knows how long this conflict will run. Oil is not yet at a level that will significantly dampen economic growth. Before this conflict began, estimates for economic growth were revised higher over the next several years. Even Chair Powell acknowledged stronger productivity in the U.S. I don’t think the Fed’s outlook has changed all that much. They revised their inflation estimate for this year up to 2.7%. However, they left the next two years largely unchanged. If growth stays intact, and I believe it will, the direction for stocks will still be higher. The right thing to do is to stay the course with your investments. If you can invest more by upping contributions to your retirement plans, now would be a good time to do that.
After two weeks of surging oil prices, U.S. crude remained relatively stable. It is for sure at elevated levels. It is not yet dangerous to economic growth. On Friday afternoon, oil was trading around $99 per barrel. It is only up from about $98 at the end of the previous week. It is well above a recent low of around $65 in late February. As I said last week, our current situation is much different from the one that produced the stagflation of the 1970s. Energy spending as a share of overall consumer spending is significantly lower than it was during the 1970s. It is about 2% today versus about 6% back then. That means the impact on household purchasing power is far less. Another big difference, the U.S. is now a net exporter of oil. That was obviously not the case in the 1970s.
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