Nothing lasts forever. Conflicts between Iran and Israel over the weekend pulled the S&P 500 (SPY) from the 5,246 high to just 5,044.50. The Dow and Nasdaq followed, while the small-cap index, iShares Russell 2000 ETF (IWM), lost 4.76% in the last week. Small firms usually suffer more than bigger ones when economic uncertainties and geopolitical conflicts are on the rise.
Markets cannot shake off the impact that the persistently high inflation rates would have on monetary policy. They are quickly re-adjusting from six rate cuts (Dec. 2023) down to two or three rate cuts in 2024. Investors who review Fed Chair Powell’s commentary would realize that the rate cut is sometime this year. Its frequency and size are unknown. A 25 bps cut in 2024, for example, would have no impact on credit conditions.
On Monday, Census Bureau data indicated retail sales climbed by 0.7% in March. Economists expected a 0.4% increase. Retail firms like Home Depot (HD), Walmart (WMT), and Costco (COST) should continue posting strong results. Lululemon (LULU) and Canada Goose Holdings (GOOS), unfortunately, will still struggle. They sell high-priced items that consumers no longer want to buy.
In the energy sector, oil prices settled at $85.41. WTI crude prices fell by over 1% drop at one point. Investors who missed the Exxon Mobil (XOM) and Conoco Phillips (COP) should not chase those stocks. Wait for oil prices to trade in a range first.
