March wrapped up the fourth quarter with heightened volatility. In our writing last month, we were able to point to the immediate impacts of the escalation of tensions with Iran via Operation Epic Fury – historical spikes in oil prices, fears of accelerating inflation, and sharp pullbacks in equity indices. These headlines continued to dominate market action throughout the month as traders watched and listened carefully for any additional information about potential conflict resolution. Dependent on the headlines of the day, oil prices and stock prices traded with a stark inverse relationship, showcasing the importance of energy prices in a global economy. Bond values also declined as the Fed charged back into the picture. Prediction markets shifted rapidly from the rate cuts that were forecasted earlier in the year to pricing in potential rate hikes in 2026. Inflation could be creeping back into the picture in a meaningful way due to the closure of the Strait of Hormuz. Of course, oil prices dominated headlines, but other important hydrocarbons also traverse the strait daily; these include sulfur, helium, and fertilizer, which could directly impact food prices. However, the long-term effects are still to be seen as President Trump continues to navigate the conflict. In turn, on the final trading day of the month, he was able to spark a strong one-day rally with commentary about military de-escalation.
So far in April, markets have remained focused on the Iran conflict. However, on Good Friday, we also had the monthly BLS employment report that showed a large surprise to the upside from job creation, quelling some initial fears around economic weakness caused by higher energy prices. However, just two days later, on Easter Sunday, the rhetoric around the Strait of Hormuz was intensified with an ultimatum from President Trump. Over the next two days, markets traded marginally higher as they sat in waiting for a response before the President’s deadline. Ultimately, the reaction was positive. A two-week ceasefire was reached, and Iran agreed to open the Strait of Hormuz in the interim. Tankers and cargo ships began to traverse the Strait, while oil prices plummeted and stock prices rebounded. While this was welcomed progress, all clear cannot be signaled yet. Traders will continue to focus on any quarrels in the Middle East, but they may be able to expand their focus as earnings season approaches. Over the coming weeks, we will receive earnings reports from the largest banks first, giving insight into fund flows and spending in different parts of the economy. Their commentary will be important to digest, as it can provide insight into consumer and business behavior in reaction to geopolitical uncertainty. Then, as the month progresses, reporting will pick up from all sectors of the economy, hopefully shifting attention back to market fundamentals and expected earnings growth.
Looking ahead, we will most likely continue to see volatility until a permanent agreement can be reached with Iran. But, the sharp one day, and even intra-day, swings prove as a cogent reminder of the importance of staying invested. Market timing in any environment, especially one like this, can lend itself to short-term decisions that derail long-term plans; we cling to the adage, “time in the market versus timing the market”.
Data sourced from Janney's "April Investment Perspectives".
