Weekly Newsletter: April 7, 2026
A year later, and the song remains the same. A year ago, it was all about tariffs. The announcement was made, and within days, the markets fell over 10%. In a speech last week, the markets were anticipating a more conciliatory tone; they were disappointed by “we are going to hit them hard,” and oil prices shot higher. Stocks and bonds initially sold off, but by Good Friday, there was an uncomfortable calm in the market. The markets were closed for the Good Friday holiday, but the government was hard at work pumping out economic data in the form of the monthly jobs report. To everyone’s surprise, it showed job growth nearly three times the estimates. Unemployment ticked down, and wage growth was modest. The surprise pushed yields higher and stocks a bit lower in the futures markets as expectations were further dashed for any hope of a rate cut this year. Next week brings the inflation data and perhaps a glimpse into the havoc wreaked by the hike in oil prices during March. Consumer spending via retail sales and future inflation reports in the coming months should paint a more complete picture of the health of the consumer in the face of higher oil prices. The hike in tariffs a year ago was “saved” by TACO (Trump Always Chickens Out). A repeat of that scenario is an unlikely one in the Middle East.
The economic data point of the week was the employment report. There were various survey data earlier in the week showing manufacturing looking pretty good, but prices paid indicators were sky high. The job gains in the employment report were widespread, with the usual gains in healthcare helping out again this month. The government lost jobs again last month. For all the good news, there were a few things worthy of a closer look. One is the length of unemployment, which has been ticking higher over the past few months. After bottoming in 2022, the median number of weeks has gone from roughly 8 weeks to just over 11 weeks. Many have pointed to this figure as a sign of weakness in the jobs market. If things were strong, it would not take 3 months to find another job. The labor participation rate has also been falling. After dropping dramatically following Covid, it took another 4 years to regain the pre-Covid rate, before falling off during the past year. Like the growth in the jobs from healthcare-related jobs, the lower participation rate can be partially attributed to an aging population and more retirements. The weekly jobless claims data still points to a decent overall job market; it is not without issues that could be a long-term problem for the US labor force.
After following stock prices lower during March, the bond market turned tail and rallied during the holiday-shortened week. High yield also rallied, indicating investors are willing to once again take on risk, even in the face of (still) higher commodity prices. For its part, the Fed could be getting boxed in, meaning the economy is not weak enough to justify a rate cut, nor inflation persistent enough to warrant hiking rates. The yield curve, the difference between the two and ten-year yields, has declined a bit. Again, not enough to warrant concern, but something different than the past three years.
Turning the page on the calendar put investors in a good mood. Stocks rallied even as the news around the Strait of Hormuz remains the same. After five consecutive weekly declines, a rally was indeed due. The question is now the durability of this rally. Some investors question whether this is a reflexive rally that is destined to see stocks trade lower or something longer lasting. The seasonal pattern is in favor of a rally. Historically, April only trails December as the best month on the calendar. Investor sentiment is very bearish, from individual to institutional investors. So, the combination of a lousy March and poor sentiment has set up the market for a bounce. Within the market, the 40%+ gain in the energy sector during the first quarter stands out as the winning sector. Outside of energy, the surprising winner of the quarter was the dollar. After peaking in early 2025, the dollar fell by over 10% in early 2025. This year, the dollar has rallied in the face of the Gulf conflict. If the second quarter turns into a reversal of the first quarter move, international stocks may once again take the performance leadership.
Inflation data will be in focus this week. Earnings season gets started in earnest in another week. Energy-related news will continue to dominate the day-to-day news flow.
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.