The Middle East war continues and the Straits of Hormuz, the price of oil, and the overall theme of uncertainty have all put pressure on the markets this week. The S&P 500s only up day was Monday, on Thursday it had a greater than 1% loss, and it notched its third consecutive down week, closing Friday at 6,632. With the war news changing hourly, lets focus on this weeks economic news. On Wednesday inflation came in as expected, with core at 0.2% MoM/2.5% YoY and headline at 0.3% MoM/2.4% YoY, signaling steady but still slightly warm price pressures. Friday was another busy day as Q4 GDP growth slowed sharply to 0.7%, while core PCE held at 0.4%, signaling cooling momentum and sticky underlying inflation. Meanwhile, Michigan Consumer Sentiment dipped to 55.5, reflecting continued household caution as higher prices and slower growth weigh on confidence. From a technical perspective the S&P 500 is now down YTD, but from a historical perspective lets look back to the last time the Straits of Hormuz was closed, during the 1973 Yom Kipper war. 1) Oil prices surged from roughly $3 to over $11 per barrel, a nearly fourfold increase, 2) Energy shortages led to rationing, long gas lines, and a collapse in consumer and business confidence and 3) Inflation accelerated sharply as energy costs rippled through the economy. In fact, the S&P 500s path from the 1973 peak to full recovery was one of the worst bear markets in modern U.S. history and one of the slowest real recoveries on record. Starting in January 1973 the S&P 500 fell just under 30% for the year, and more than 40% in real terms across the full 197374 crash. Now comes the ouch part. The S&P 500 did not return to their early 1973 levels until August 1993 for a 20year nominal roundtrip, nothing like the recent 2020 COVID bear market. Ouch again!! Next weeks economic news is light, but we do get the Feds interest rate decision on Wednesday. For TSP TIPS the C/S/I Composite Scores and Performance Rankings continue to fall off in this uncertain market environment. As such we are recommending a further equity allocation reduction and corresponding cash/G fund allocation increase in all three models.
The Middle East war continues and the Straits of Hormuz, the price of oil, and the overall theme of uncertainty have all put pressure on the markets this week. The S&P 500s only up day was Monday, on Thursday it had a greater than 1% loss, and it notched its third consecutive down week, closing Friday at 6,632. With the war news changing hourly, lets focus on this weeks economic news. On Wednesday inflation came in as expected, with core at 0.2% MoM/2.5% YoY and headline at 0.3% MoM/2.4% YoY, signaling steady but still slightly warm price pressures. Friday was another busy day as Q4 GDP growth slowed sharply to 0.7%, while core PCE held at 0.4%, signaling cooling momentum and sticky underlying inflation. Meanwhile, Michigan Consumer Sentiment dipped to 55.5, reflecting continued household caution as higher prices and slower growth weigh on confidence. From a technical perspective the S&P 500 is now down YTD, but from a historical perspective lets look back to the last time the Straits of Hormuz was closed, during the 1973 Yom Kipper war. 1) Oil prices surged from roughly $3 to over $11 per barrel, a nearly fourfold increase, 2) Energy shortages led to rationing, long gas lines, and a collapse in consumer and business confidence and 3) Inflation accelerated sharply as energy costs rippled through the economy. In fact, the S&P 500s path from the 1973 peak to full recovery was one of the worst bear markets in modern U.S. history and one of the slowest real recoveries on record. Starting in January 1973 the S&P 500 fell just under 30% for the year, and more than 40% in real terms across the full 197374 crash. Now comes the ouch part. The S&P 500 did not return to their early 1973 levels until August 1993 for a 20year nominal roundtrip, nothing like the recent 2020 COVID bear market. Ouch again!! Next weeks economic news is light, but we do get the Feds interest rate decision on Wednesday. For TSP TIPS the C/S/I Composite Scores and Performance Rankings continue to fall off in this uncertain market environment. As such we are recommending a further equity allocation reduction and corresponding cash/G fund allocation increase in all three models.