We hope you and your family had a wonderful Easter weekend and we trust that your spring season is off to a fulfilling and productive start.
As we move into the second quarter of the year, the investment landscape continues to be a challenging one with increased geopolitical stress, inflation and monetary policy uncertainty, an increasingly questionable labor market and industry specific Ai disruption all adding to the market’s woes this year.
This uncertainty is reflected in the year-to-date index returns, with the Dow 30 currently at -0.3%, the S&P 500 at -0.9%, and the Nasdaq Composite at -2.6%. Given the circumstances, we feel this is quite acceptable for the moment.
The March CPI (Consumer Price Index) report was released this morning and as expected consumer prices spiked last month, pushed higher by the 10.9% surge in energy costs. This puts the annual inflation rate at 3.3%, which is getting further away from the Federal Reserve target inflation rate of 2.0%. However, if we strip out food and energy costs prices rose much less than expected indicating that underlying inflation remains contained.
Broadly, this is good news because it means the Federal Reserve may be able to look through the temporary energy noise and an interest rate cut could be back on the table for 2026. Currently, the market is not pricing in any rate cuts for the rest of the year, which has been a disappointment. Even a 25 basis point rate cut would provide a small amount of relief to consumers in the form of lower credit card rates, HELOC rates but does little to nothing to bring down mortgage rates unfortunately.
The conflict in Iran has largely sucked all the oxygen out of the room and this is the number one issue that needs to be resolved before stocks and bonds can materially benefit going forward.
The temporary ceasefire that was announced on Tuesday night -sparking the rally we saw on Wednesday, did much of the heavy lifting getting stocks back on track and depending on today’s close the S&P 500 and Dow Indices could tip back into positive territory for the year.
The market volatility we have experienced in the last several months is no doubt uncomfortable, but this market decline has been the best type of decline we could ask for. I’ll explain, in early February, the S&P 500 Index was trading at a forward multiple or P/E (price to earnings ratio) of 23.5 to 24x. This is considered expensive on a historical basis. For stocks to continue to go higher at that multiple, forward earnings projections need to be realized at a bare minimum.
Fast forward to today (April 10th), the recent stock selloff has brought the S&P 500 Index forward multiple (P/E) down significantly to a more tolerable 19.8x but companies have not cut their forward earnings guidance. In other words, stocks prices have become cheaper while maintaining the same earnings projections that allowed for their previous higher valuations. Remember, stock prices follow earnings in the long run. Sentiment and headlines move stock prices in the short run.
Next Tuesday (April 14th), 1st quarter earnings season kicks off with many of our individual portfolio holdings reporting throughout the week such as JP Morgan, TSM, ASML, Netflix etc. and we will be following their commentary closely to get a better understanding of what to expect for the rest of the year. Of course, we could see earnings projection cuts being announced throughout the month, but we feel it’s still too early in the year for that.
If S&P 500 forward earnings guidance largely stays intact, coupled with a near term conclusion to the Iran conflict, the market’s focus can return to earnings and company fundamentals. If this scenario plays out, we feel confident in reiterating our S&P 500 index year-end target of 7,500 -which would be 8.8% higher than where we are today.
Conversely, If the conflict continues to drag on then real economic damage could set in -which would call for a reevaluation in our assumptions for year end.
In the interim, we are well positioned to capitalize on dislocations in both the stock and bond markets as they arise, while having a clear-eyed assessment of the ongoing risks.
As always, we wish you and your family a great Friday evening, and a wonderful weekend!
Please reach out to us with any questions or comments you may have regarding your specific situation.
Jaran C. Day, Chief Investment Officer
Griffin Dalrymple, CFP®, Chief Strategy Officer
Past performance is not indicative of future performance.
The views expressed represent the opinion of Opinicus and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Opinicus’s view as of the time of these statements. Market performance cited is not indicative of portfolio performance experienced by portfolios Opinicus manages. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.