Weekly Newsletter: April 13, 2026
“If I seem unduly clear to you, you must have misunderstood what I said.” Alan Greenspan was notorious for vague and ambiguous language. While President Trump is nearly the antithesis of Mr. Greenspan, the contradictory talking points from day to day have created a fairly volatile market. The discussion of a ceasefire and a US envoy heading to Pakistan provided a huge boost to stock prices. The back-to-back gains of 3% over the past two weeks put the markets back within shouting distance of all-time highs. The gains were more impressive in the tech group, rising nearly 10% as investors swung into the more volatile names that can provide big gains (or losses!) in a short period of time. Threats of a continuation of the war were also heard if the peace talks break down, so the risks continue to be high in the short-term for investors glued to the daily headlines. The impact of higher energy prices over the past month has shown up in the release of the consumer price index this past week. Nearly three-quarters of the entire gain in the inflation data is attributed to the rise in energy. Can lower or higher interest rates solve higher inflation due to an energy “shock”? Highly unlikely, but that will not stop Fed officials from opining about inflation and the direction of interest rates.
The surprise in the CPI report was not the headline rise in inflation; it was how little impact was felt in other parts of the report. Taking out the large increases and decreases in the report and focusing on the middle two-thirds of the CPI reveals a relatively benign backdrop for inflation. Granted, the first month will not show the long-term impact of higher energy prices, but it does provide an insight into how the economy was doing prior to the oil price rise. The producer price index will be released this week and may also provide some insight into the energy impact on prices. Too, the kickoff to the earnings season should provide some guidance on how companies are reacting to higher prices. Going back a year to the higher tariffs, those price impacts never really showed up in the inflation data to a great degree. Corporations still managed to grow earnings by a mid-teens rate, providing support to the rally last year. The dangerous question is always asked, “Is this time different?” Energy prices hung around the $100 level for much of the 2011-2014 period and briefly touched it again in 2022. The economy has been here before and has done relatively well. A desire by the Fed or Congress to push money into the economy to “help” with higher energy prices could be a recipe for persistently higher inflation in the quarters/years ahead.
High-yield spreads, or the difference between yields on low-grade corporate bonds and treasuries, were slowly widening during the first quarter, indicating some unease by bond investors. Those spreads have quickly tightened up. Interest rates in general, even in the face of higher energy prices, have declined somewhat over the past few weeks. The current thought is that the Fed is likely to stand pat for the next few months and could begin cutting rates again toward the fall. This is predicated on what happens to energy prices and how it impacts the rest of the economy. Unless the economy slows dramatically due to higher energy prices, it is unlikely that the Fed will move on rates.
Back-to-back 3%+ weeks in the markets are making investors feel much better about their portfolios. Whether those moves are entirely justified is another question. The playbook is similar to the tariff trades a year ago; the markets fell on the announcement and quickly regained those losses as tariffs were subsequently adjusted or eliminated. Today, prices fell as the bombing began, and have quickly recovered those losses as an olive branch has been extended. There are still plenty of things to worry about in the market that have moved to the back page, from AI to private credit and the upcoming earnings season. Given the events in March, the earnings reports are likely to be largely ignored, but commentary about the outlook for the remainder of the year is likely to move individual stocks. Hanging in the background is (still) a richly valued market relative to historical norms. Geopolitical events usually have a short-term impact on prices, but economic growth (or recessions) have a longer and greater impact on prices. A recession is not in the cards right now. The economic data over the next 3-6 months will be instructive in understanding the impact of higher energy and the potential for an economic slowdown.
Producer prices and earnings from the major banks, along with the peace negotiations, are likely to dominate the headlines this week. The daily 1% swings in the markets are not likely to be done just yet.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.