Stocks are not cheap, but are less expensive than they were a few months ago (on forward 12-month estimates).
Rising EPS estimates means sideways stock prices make them cheaper.
Recession worries could push P/Es much lower (as in 2022), but not seeing that yet.
Waiting for Q1 earnings reports to start in earnest next week, but so far no signs that war/inflation is causing analysts to cut S&P 500 index EPS estimates: still rising.
Analysts can't predict geopolitics or oil prices either, but six weeks in to the war and no major response for index EPS.
Bond yields up slightly after the CPI despite being "better than expected".
Stocks not doing much at the open overall, holding recent big gains. VIX down to 19 now.
It remains somewhat unusual that the PCE inflation data is higher than the CPI data, as historically core CPI has run about 0.5% *above* core PCE, whereas lately it has been almost that much *below*.
Some is because shelter (rent) is a bigger component of CPI (35% vs 16%) and has been slowing.
CPI today was somewhat better than expected, even with the huge surge in energy prices.
Headline CPI +0.9%, but core CPI was moderate at 0.2%, some signs tariff impacts starting to come off.
Risk is how much energy bleeds into other prices like airfares, shipping, etc. in the next few months.
On point 3 below, as some have noted, the real (inflation-adjusted) price of oil (using the 12-month futures strip) is still not very high.
Real crude price was much higher for years in 2010-14 (and spiked to twice as high in 2008).
We're still well below the 2022 Russia-driven spike.
Market behavior suggests:
Investors want to believe major violence will end soon
Some deal will be worked out for the Strait of Hormuz
Even if oil is ~$80/bbl for a longer time, the economy will be ok and corporate profits won't be affected much.
Fed won't respond to energy-driven inflation.
Looking forward to joining Trading 360 with Jenny Horne on the SchwabNetwork at 11:50am ET today to discuss the latest Personal Consumption data
schwabnetwork.com
The data is still noisy and the shutdown last fall may still be skewing things, but the trend seems to be higher inflation and slower real growth before the war started.
This keeps the Fed in a bind, with labor data likely the deciding factor, and it is so far still ok.
The PCE data today showed concerning trends for February, i.e. before the energy/war shock.
Core inflation at 3.0% Y/Y, but 3.4% for 6-month annualized, and 4.4% 3m annualized. i.e., accelerating
Real spending just 0.1% in Feb., still 2.5% Y/Y but just 1.3% 6m annualized and 0.8% last 3 months.
Looking forward to joining Trading 360 with Jenny Horne on the SchwabNetwork at 11:50am ET today to discuss the latest Personal Consumption data
schwabnetwork.com
Oil and gasoline prices did fall today, but by the end of the day, the more stable 12-month futures strip (avg. of next 12 monthly futures prices) fell less than $2/bbl to about $79, vs a peak of $85.
Gasoline futures fell about 8 cents to $2.51 on this basis, with a recent peak of $2.70.
There seem to be ongoing concerns about whether a cease-fire is really happening, and whether a meaningful number of ships will be crossing the Strait.
Oil prices have moved back up this afternoon, but mostly beyond the front month.
May26 WTI $-16.79 @ $96
Sep26 $-1.90 @ $78
Dec26 $-0.50 @ $74
Evidently Israel/Lebanon (Hezbollah) are not included in the cease-fire deal, and attacks there continue unabated.
Apparently this may be an issue for Iran, which has indicated (via Tasnim news) that the truce deal may be withdrawn if attacks on Lebanon continue.
Today looks to be a big short-covering/position reversal day, with energy stocks falling and riskier non-commodity stocks jumping.
Also news from Bloomberg that Saudi's main east-west oil pipeline was hit by a drone attack today, but amount of damage is unclear.
Fighting may not be over yet . . .
The VIX is looking to show one of its biggest one-day declines from the 25-30 level ever, down more than 5 points to about 20 (declines from more extreme readings have been larger).
A VIX of 20 is reasonable if geopolitical conditions have in fact sustainably improved, but that remains to be seen.
Everyone still watching charts like this to see if ships will actually resume crossing the Strait in significant numbers. Latest readings show nothing so far.
Also unclear if Iran will in fact charge $2M/ship for safe passage, and how much of that cost would be reflected in commodity prices.
The cease-fire news from last night has kept oil prices sharply lower and stock prices sharply higher this morning. Europe up 4-5% today.
Bond yields and the US dollar are also down alongside the drop in oil.
Still unclear if Israel is included in the plan, or what will happen in the Strait.
Seems the critical detail on passage through Hormuz is still unclear, particularly for any US-allied ships.
Guess we'll have to just keep watching to see if ships actually get through . . .
Markets moving sharply after hours on news of the cease-fire, which is hopefully real, though unclear if Israel is a party to it.
Oil futures down sharply, about 16% on front-month, less on later months. S&P 500 futures up 2.2%, coming after a late afternoon rally.
Dollar down, bond yields down.
So far, then, AI has not destroyed earnings estimates for Software, despite predictions about the long-term impact.
And AI is keeping hardware (semis) demand very high, though with some risk that surging prices for memory, storage, etc. hurts broader tech spending outside of AI.
So on a relative basis, estimate trends for Semis are much stronger than those of Software, even though both are still net positive and thus better than many other industries.
Software's underperformance has made it historically cheap relative to Semis (and the broader market).
Another day of Semis over Software within Tech.
Zooming out, earnings estimates are still being raised in Software (IGV), but at a slower pace than much of last year.
Estimates in Semis (SOXX) are still being raised extremely aggressively, with few signs of slowing down.
More on our MAER stock selection tool here:
www.millstreetresearch.com/sample/Mill%...
The stock had become fairly expensive late last year, around 2x the market multiple, but has since corrected quite a bit. The mix of lower stock price and higher earnings makes it now much closer to a market multiple and still growing earnings rapidly.
It is worth noting that Broadcom (AVGO) is one of the most dramatic examples of a persistent "beat and raise" company.
Analysts have basically been surprised to the upside consistently for 5 years now, always raising EPS estimates: red line in the chart rising and blue bars above zero.
Here is the news driving the gains in Broadcom and some related stocks today.
www.marketwatch.com/story/broadc...
Health Care stocks getting some help from the news on Medicare payments, led by UnitedHealth and CVS Health.
Oil stocks up unsurprisingly, but even after its big recent gains, Energy is only about 4% of the S&P 500 by weight, so it cannot offset weakness elsewhere by itself.
Stocks are under some pressure today as oil prices are up again on concerning headlines from the Middle East and Trump.
Big Tech is a drag today despite gains in Broadcom, Intel, and Alphabet, as Apple, NVIDIA, Tesla, Microsoft, and Amazon are all down 1%+
Autos and airlines also down.
While a few ships have come through the Strait lately, the latest Bloomberg data show that it is still a tiny fraction of the normal pace.
Clearly lots of negotiating going on between other (non-US) countries and Iran to get ships through, but not much so far.