Hope you are all doing well. The Iran conflict caused a spike in oil prices. That, coupled with a disappointing monthly jobs report, weighed on stocks this week. U.S. indexes fell for the second week in a row. The Dow finished down 2.9% on a total return basis, the S&P 500 retreated 2.0%, and the NASDAQ ended 1.2% lower. Overall, the S&P is still only about 4% from its all-time high. Britney Spears was in the news this week with more legal issues. I have broken down this week’s update using lyrics from her first hit, Oops!… I did it again.
“But it doesn’t mean that I’m serious” – Britney Spears
Despite Iran’s Navy being decimated, the U.S. International Development Finance Corporation (DFC) has offered specialized, government-backed insurance. Shippers are taking the threat of Iranian attacks very seriously. They are not sending ships through. That’s because insurance is not the principal issue. It is the underlying security risk. As a result, oil prices are at their highest levels since September 2023. With oil shipments in the Persian Gulf’s Strait of Hormuz sharply curtailed, U.S. Crude was trading around $91 per barrel late Friday. That is up from $67 a week earlier. We haven’t had many dips in the stock market. If you have money you were looking to invest, now is not a bad time to deploy a small portion of it. My feeling is that once we see oil tankers crossing the Strait of Hormuz, the market will bounce. What’s impossible to know is when exactly that will happen. However, Energy Secretary Chris Wright said,”We’re not too long, I think, before you will see more regular resumption of ship traffic through the Strait of Hormuz.” If you take him at his word, it could be any day.
“I’m sent from above” – Britney Spears
February’s net loss of 92,000 jobs came as a surprise. Most economists had predicted Friday’s report would show a gain of around 50,000. The loss can be partially explained by the extreme weather beating down from above across much of the country. The setback marked the third monthly job decline in the past five months. Initial figures for December and January were revised downward by a combined 69,000 jobs. The February numbers weren’t just hurt by the weather disruptions caused by the Blizzard. It was also impacted by strikes, including those involving over 30,000 Kaiser Permanente healthcare workers in California and Hawaii. As I have mentioned consistently for the past several years, the graying U.S. population (11,400 people turn 65 each day) and lower net migration should keep unemployment low. We see this in the unemployment rate, which in February increased only marginally to 4.4% and remains very low. Weak employment numbers bolster expectations for a Fed cut. The market would have maybe focused on that positive if it weren’t for the spike in oil.
“Got lost in this game” – Britney Spears
For the most part, Europe and Asia refused to partake in or even assist the offensive in Iran. Unfortunately for them, their economies and markets are being impacted regardless. International stock indexes fell far worse on the week than their U.S. counterparts. The MSCI EAFE Index and its emerging-markets counterpart, the MSCI Emerging Markets Index, were both down nearly 7% for the week. International stocks fell further, primarily due to greater vulnerability to surging energy prices. The US is less dependent on oil from the Middle East. The U.S. is a net exporter of oil. Europe and Asia rely heavily on imports, making them more sensitive to supply shocks from the Strait of Hormuz.
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