@theMarket: Investors Await Direction, As Stocks Churn

It was an uneventful week, at least until Friday. Growth remains firm, but inflation remains a concern. The data gave few clues, while geopolitics kept markets in check. And then, on Friday morning, the Supreme Court struck down Trump's tariffs.

 

The response was somewhat muted, although foreign equities did spike higher. Most investors, and I suspect the administration, were expecting that outcome. It is why the president's staff has been working on a Plan B for months now. Tariffs will continue, for sure, but levying them will now take longer since Congress must approve.

 

As for markets overall, call it what you will — consolidation, range-bound, volatile — stocks just couldn't mount a real comeback. The market indexes traded in a tight range while under the hood, the rotation game continued. And then there is Iran.

 

All week, the tension mounted as negotiations between the U.S. and Iran stalled. Both sides upped the stakes by showing their teeth. The U.S. forces on sea and air tightened the noose around its adversary. In response, Iran threatened the Straits of Hormuz, where the lifeblood of industry, oil, flows through and into Europe.

 

Oil rose above $65/bbl. as fears of a shooting war continue to mount. The safety trade of gold and silver hung in there as well. Hovering in a tight range above and below $5,000 an ounce. One might be tempted to dismiss these market jitters as another TACO play by the president. However, after the first bunker-busting go-around with Iran barely seven months ago, the odds are higher that something major could be in the works.

 

My own opinion is that the chances of such a debacle are lower than many fear. That does not rule out another aerial bombardment, but not a ground war or regime change. Middle Eastern nations do not want to see a shooting war in which the U.S., and particularly Israel, comes out on top.

 

The Arab states would prefer the devil they know (the present Iranian leadership) to something worse. An even stronger Israel, an Iranian civil war, or becoming embroiled in a larger regional conflict are scenarios that they would rather avoid.

 

The question is whether they can convince Jared Kushner and Steve Witkoff to let cooler heads prevail. It is noteworthy that both the National Security Council and the State Department were left on the sidelines in Geneva this week. Bypassing these two bodies, which have traditionally conducted such negotiations, says a lot.

 

The Gulf Arab States and Turkey have welcomed both men, despite having no official capacity within the government. Kushner spearheaded the Abraham Accords in his father-in-law's first term between Israel and several Arab countries and has as clients the wealth funds of Saudi Arabia, Qatar, and the United Arab Emirates. Both U.S. negotiators have reputations for prioritizing dealmaking over human rights or democracy-building.

 

In the meantime, the economic data remains robust, though the picture is mixed. Higher numbers for housing permits, capital goods orders, and industrial production indicate some growth ahead. However, U.S. GDP growth disappointed, coming in at 1.4 percent instead of 2.9 percent for the last three months of 2025. The 43-day government shutdown took the blame for that slowdown.

 

Another bummer was the latest FOMC meeting minutes. Most of the 12-member committee worried about inflation and thought the Fed might need to raise rates if inflation stays sticky. If that happens, it could put them in direct conflict with the White House and make the new Fed chairman's job a nightmare. Furthermore, the Fed's key inflation gauge, the Personal Consumption Expenditures Price Index (PCE) for December, also rose more than expected.

 

In the past, the Fed has often thought inflation was contained, only to see it resurge. An inflationary rebound tends to occur when financial conditions quickly loosen, supply pressures persist, and government spending rises. Combined with a tight labor market, these factors can reignite an already-elevated inflation rate.

 

The next two weeks could be high-risk for investors. The Supreme Court decision on AIPA tariffs is behind us, but the State of the Union address, Iran escalation, and Nvidia earnings remain ahead. These events may keep markets volatile, and any one of them could send stocks down quickly.

 

The rotation out of growth and into value will continue. Gold and silver prices are somewhat overvalued but supported by a war risk premium. Quarterly earnings beats are in the range of 75 percent for all reporting companies thus far. However, the price action on announcements suggests to me that, after an initial pop, many stocks are hit by profit-taking.

 

I am using the 6,900 level on the S&P 500 Index as a guide. Under that, the bears take over; over it, the bulls have a chance of running with the ball.