@theMarket: World Markets Await Yet Another Weekend of Ceasefire Talks

Markets are betting that a ceasefire will hold between the U.S., Iran, and maybe even Israel. They are also gambling that the outcome of this weekend's negotiations between those parties will end with the opening of the Straits of Hormuz.

 

Place your bets, ladies and gentlemen, black or red. In the meantime, we wait for the next social media post to determine which way the markets and your fortunes will go. I continue to keep my eye on the ball, which is the price of crude oil, although I have noticed that the price of equities and the price of crude are beginning to decouple.

 

This week, an 18 percent decline in West Texas Intermediate (WTI) equaled an almost 3 percent gain in the stock markets. Don't be misled by those gains. They weren't based on anything fundamental. The rise came from short covering — traders who had bet against the market buying shares to cover those bets. The president's post on Truth Social, vowing that "a whole civilization will die tonight," drove traders to hedge their positions by shorting the market. What choice did they have when the leader of the so-called "free world" made such a threat?

 

Sure, it was likely to end in another Trump TACO before the Tuesday night deadline (which it did), but professionals couldn't risk Trump actually following through on his threats. When he didn't, traders who had shorted the market had to quickly cover their positions — a process known as covering shorts. That, my readers, is why the S&P 500 and other indexes rallied.

 

And now back to reality. The Fed's key inflation index, the Personal Consumer Expenditures Index for February, rose 0.4 percent versus 0.3 percent in January. That's the steepest monthly increase in a year and right in line with my expectations. Higher costs in motor vehicles and parts, recreational goods, gasoline, clothing, and food were fueling inflation.

 

U.S. personal incomes in February fell, while personal spending rose. Fourth-quarter 2025 GDP was further revised downward, to only a 0.5 percent gain. While the administration blamed the entire decline on the government shutdown, the real driver was a cooling of consumer spending, investment, and exports.

 

I know none of this matters to most market participants right now, but in time it will. The Consumer Price Index (CPI) for March was also higher than expected. Headline CPI was 3.3 percent higher than a year ago. It was the largest monthly gain (+0.9 percent) since 2022. The spike was almost all attributable to gasoline prices. Just wait until you see the next report!

 

You can forget any Fed interest rate cut as a result, at least until the new Fed chair arrives in May. At that point, we will see how much independence the Federal Reserve Bank has left. There would have been a time when I would have led with the CPI news in this column, but the talks with Iran are what investors are most worried about right now.

 

A weakening economy and rising inflation will have to wait until we know whether there will be a workable ceasefire, the opening of the Straits, and relief from rising energy prices. Right now, the market's reaction to the high inflation numbers tells me the numbers were already priced-in. It could also be that investors believe this inflation spike is transitory and will fade as the price of oil fades. 

 

The S&P 500 has recouped almost all its year-to-date losses over the last two weeks. That is a good sign, and if next week sees the indexes continue their bullish climb, I may start to breathe a bit easier. I need to see the NASDAQ's QQQ ETF decisively break above 615 to get more bullish. Otherwise, this rally is simply a bounce in a bear market. Color me cautiously optimistic.