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Stocks: Was That The Bottom On Monday?
On Tuesday night, we suggested that the S&P 500 might have bottomed on Monday, with a pullback of 9.1% (i.e., just under a 10% correction) from its January 27 record high. Tuesday's strong equity rally was triggered by reports that the US had found an exit ramp from its war with Iran. Wednesday night, President Donald Trump confirmed that the US would exit in two to three weeks. Stocks opened lower today as oil prices rose on fears that the US would exit the war without opening the Strait of Hormuz. Stocks then recovered during the day on reports that Iran and Oman are in the "final stages" of drafting a new joint protocol for the Strait of Hormuz. However, this is not an agreement to "open" the waterway in the traditional sense; rather, it is a move to formalize a new, restrictive navigation regime. Apparently, traders interpreted the "protocol" as a sign that a framework for managed transit is at least being discussed. Our stock market bottom call is also based on the sharp declines in our two favorite sentiment indicators (chart). Their low readings tend to provide buy signals from a contrarian perspective. They worked like a charm last year when the market bottomed on April 8. In fact, in our April 7, 2025 QuickTakes titled, "Looking For A Stock Market Bottom In Fundamentals & Technicals," we wrote: "The latest reading of the AAII Bull/Bear Ratio, at 0.35, is as depressed as during previous bear markets. The same can be said about the Investors Intelligence Bull/Bear Ratio, which was 1.00 during the April 1 week. From a contrarian perspective, that's bullish." The S&P 500 was 9.0% overbought relative to its 200-dma on January 27, when the index rose to a record high (chart). It is now 0.9% below its average. More importantly, three of the largest sectors of the S&P 500 are selling well below their 200-dma: Consumer Discretionary (-7.0%), Financials (-5.8%), and Information Technology (-3.6%). These three have led the rebound from Monday's low and should continue to do so. The Middle East conflict is the latest test of the US economy's resilience. If the war wraps up within the President's 2-3-week timeline, the economy should pass its latest test. Consider the recent batch of upbeat economic data: (1) Initial unemployment claims dropped last week to 202,000, confirming that layoff activity remains at historically low levels (chart). The four-week moving average fell to its lowest reading since the start of the year. Continuing claims edged higher, but the four-week moving average declined to the lowest since September 2024. The 4-week moving average of jobless claims suggests that the unemployment rate might have dropped during March from February's 4.4% (chart). (2) According to the Challenger layoffs report, US employers announced 60,620 planned job cuts in March, up from 48,307 in February but down a striking 78% from the 275,240 recorded a year ago (chart). Of the announced planned cuts, 25% cited artificial intelligence as the reason, up sharply from just 7% in January. (3) The recent streak of better-than-expected economic indicators has pushed the Citigroup Economic Surprise Index into solidly positive territory since the start of this year. Economic activity was strengthening, not weakening, when the war began. (4) But what about the Atlanta Fed's latest downward revision in Q1's real GDP growth rate to only 1.6% (chart)? We blame it on the weather. February 2026 was arguably the worst February we’ve seen in at least a decade.
Read Full AnalysisOn Aluminum, P/Es & Semis
The Iran war has tightened the market for aluminum, driving up prices and benefitting US producers. Jackie looks at the market dynamics and what Alcoa execs had to say about the unexpected demand they’re seeing. … Alcoa is also building a gallium plant for the US, Australian, and Japanese governments to ensure ample supplies of the metal used in electronics and produced mostly by China. … Also: Some S&P 500 sectors and industries have enjoyed rising valuations over the past year; we list some of the biggest winners. … And in our Disruptive Technologies segment, three announcements could dramatically alter demand and supply in the semiconductor industry.
Read Full AnalysisPOTUS Sees An Exit Ramp Up Ahead
I. The War and the President's Speech Yesterday, we concluded that the S&P 500's pullback bottomed on Monday, just shy of a 10% correction. The S&P 500 fell on Monday to 6343.72, down 9.1% from its January 27 record high. That low could be retested, but we think that yesterday's big rally, combined with the recent drop in bullish sentiment, marked the bottom on Monday. Stocks rebounded yesterday and today on news that the US will end the war soon. In his speech tonight, President Donald Trump confirmed that the United States could conclude its involvement in the Iran war within the next two to three weeks. He said negotiations are still underway, but threatened once again to obliterate Iran's electric power grid if there is no deal. He also said that if US satellites detect that Iran is rebuilding its nuclear program, American missiles will once again wipe out its efforts. He also stated the US will leave it to other countries to reopen the Strait of Hormuz. In response to Trump's speech, Brent crude oil rose about $4 a barrel to $105. US stock futures fell 0.8%. The White House announced on March 25 that Trump's trip to China was rescheduled to May 14. That was a tip-off that the administration was planning to end the war soon. II. The US Economy and the War We've been betting on the resilience of the US economy from the beginning of the decade. It has passed several stress tests since then without a recession. If the current stress test ends in two to three weeks, the economy should continue to grow, and so should corporate earnings. In the meantime, the latest batch of economic indicators confirms that the US economy entered the Middle East conflict in solid shape: (1) The Labor Market. ADP reported Wednesday that US private payrolls rose by 62,000 in March, following a gain of 66,000 in February (chart). Job growth remained concentrated in Education & Health Services but also extended to more cyclical sectors, including Construction and Information. An encouraging development: Job growth among small businesses has begun to improve. In addition, pay gains for job changers rose to 6.6%, the highest reading since October 2025. (2) Retail sales. Retail sales data for February confirm that American consumers are still shopping. Headline retail sales rose 0.6% on the month, while control group sales, which feeds directly into GDP, gained 0.5% (chart). (3) GDP. The Atlanta Fed's GDPNow tracker edged down to 1.9% from 2.0% following the release of retail sales data, which reflected a slightly weaker consumer spending contribution to Q1 growth (chart). (4) Inflation. Energy prices have surged since the war began, and the Cleveland Fed’s Inflation Nowcasting model shows headline CPI might have jumped 0.84% m/m in March and 3.25% y/y, a sharp step up from 2.4% in February. The good news is that core inflation has not yet been infected by the energy price shock. Core CPI is likely to rise only 0.2% m/m and 2.6% y/y in March, up slightly from 2.5% y/y in February. An important disinflationary offset to the energy price shock is in the shelter component of the CPI (chart). Apartments List reports that March rents fell 1.7% y/y. The Zillow Observed Rent Index is also moderating. Both are reliable leading indicators for shelter inflation in the official CPI. (5) Credit. Loan growth at US commercial banks remains very strong, with no sign of a credit crunch emerging. We suspect banks may be stepping up to purchase private loans at attractive distressed prices (chart). (6) ISM M-PMI. Finally, the national M-PMI has been steady around 52.0 for the past three months (chart).
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