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Chapter 1: What recent events have impacted the markets?
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Today's number, 54. That's how many years it's been since we last went to the moon. Back then, many thought that by 2026, we'd have flying cars and space hotels. We don't have that, but we do have NFTs. Money markets matter.
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Welcome to ProfgMarkets. I'm Ed Elson. It is April 9th. Let's check in on yesterday's market vitals. The major indices rose on news of the ceasefire. More on that in a second. Brent crude plummeted, the dollar fell, and Metastock popped more than 8% after releasing its new AI model, MuseSpark. Okay, what else is happening? The U.S.
and Iran agreed to a two-week ceasefire, making yet another Taco Tuesday. The two countries came to an arrangement just hours after Trump threatened to annihilate Iran. Under the deal, the U.S. agreed to suspend strikes, and Iran said it would reopen the Strait of Hormuz. Markets celebrated the news.
The S&P 500 and the Nasdaq surged nearly 2.5%, and the Dow jumped more than 1,300 points on Wednesday. Meanwhile, crude fell from $110 to $90 overnight before settling around $95. However, the ceasefire is already showing cracks. Iran halted oil tanker passage through the Strait after Israel attacked Lebanon. Iran and Pakistan claim the deal covers Lebanon, while the U.S.
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Chapter 2: How did the ceasefire with Iran affect oil prices?
And so there's nothing – like the estimates for companies, what they're pricing in doesn't incorporate any of the damage that higher oil price might do to growth or consumption. It's not – that's not in there. So – You know, I think we're in a situation where different parts of the market are sending different messages. You know, it's an interesting moment.
Yeah, you wrote in your newsletter, you said, quote, Will the truce hold? Markets have decided that the glass is half full. Oil prices fell hard and Asian stocks rose on the news. Unhedged, which is your newsletter, that's you guys. So basically, Rob. Unhed still believes investors are underpricing the possibility that sustained high energy prices will push inflation higher and growth lower.
Could you elaborate on that point, please, Rob?
Let me just lay it out in terms of a simple contrast. The stock market is almost fully recovered to where it was at the end of February. Not all the way, but I think it's within a few percentage points. Oil is at 96 after falling 17%. We started the war at $65. So all is not back to the status quo ante in the oil market.
And we've already seen today that this is a delicate situation and that things could go wrong in the straight. And even on top of that, when I talk to oil traders, they tell me, the it's going to take even in the best case scenario, it's going to take a while for traffic through the straight to normalize months, not weeks. Right.
So, uh, you know, how sensitive the U S economy is to high oil prices. We can debate, you know, but, uh, I think there's a threat, not only an inflation threat, but a threat to growth, uh, and that it's probably a bit underpriced here.
Yeah. John, what do you make of that argument?
Well, I couldn't agree with Rob more in terms of, you know, it's going to take time for, you know, ships to start running straight again. So I completely agree with that. Markets will move ahead of that. So I think as an equity investor, you know, we have to be thinking about where markets will be before that occurs because equity markets are going to discount that quickly.
So I think waiting for the headlines is always a challenge with investing. In terms of slowing growth, I would also agree this is the real risk because higher oil prices are a regressive tax, meaning that that is a tax on everyone up and down, really the global economy. It's not just Americans. It's everyone.
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Chapter 3: What are the implications of inflation on market trends?
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We're back with ProfgMarkets. It sounds like we believe that ultimately when it comes to markets, I mean, there are many reasons why this is important for reasons totally aside from markets. But it seems as though the big implication is what this ultimately does to inflation and what those inflation expectations do in terms of the Fed's decisions.
And that seems a little bit stupid when you say it out loud, but ultimately it does seem like that is what's going to determine the markets over the next year or so.
No, I would say there is a second channel.
Okay.
The first channel, which John just described brilliantly, is that channel that leads to what the Fed does. The other channel is, that's the inflation channel. The other channel is growth. So we put a regressive tax on consumers, right?
in a economy where there is not as much fiscal stimulus as there was in 2020, where the job market is not getting worse, but it's a little bit squishy already, right? No hire, no fire. It's not dynamic. Where there's just a little bit noise about credit problems in areas like private credit or consumer credit among poor consumers. Then you say, okay, regressive tax on the poorest consumers.
You know, real income goes down. Consumption comes down a little bit. Companies start to feel the pressure. You know what a company does when it feels pressure? I got to protect my margins. You know what I'm going to do? I'm going to fire someone, right? Save a little bit of money. And you can see where this is going. And by the way, I should emphasize, I think John's optimism is well-placed.
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Chapter 4: How are investors reacting to market volatility?
It's like, well, they are up 5% today. It's like, that's great. There's a lot of other areas that were up 5% today with really good fundamentals that make sense why they're getting a re-rate because there's been no break in the fundamentals. And we're just entering earnings season. So we're going to get a better read.
But I couldn't agree more that all these things ultimately do trickle down and are going to impact how the companies think about their capex spend, their hiring, their firing, all of that. But ultimately, the companies that are best equipped to deal that have pricing power and those companies that have had multiple compression in this environment are the opportunities for investors today.
The only thing, I think that's, you've nailed it there. The only thing I would add, huge difference between $100 oil and $150 oil, and another huge difference, again, between $150 and $200. And $200 is imaginable, by the way. In inflation-adjusted terms, we were at $200 in 2008 before that crisis happened.
So, like, if we, you know, I think most of the economists I talk to, the math on this stuff is too hard for me to do, but the economists I talk to say, you know, you can live 120, 130, 140, you get much higher above that. then you see the economy's sensitivity to the price of oil at that point. But that's a far way off, which is some reason for optimism.
I could not agree more. You know, you push oil toward that 200 mark, the pain point gets exponential. What is so different today because of the fracking technology, which was actually invented, I'm sitting here in Dallas, it was invented in Fort Worth, Texas. You know, The U.S. is now, you know, the largest oil producer in the world.
You go back to 1970s, okay, you know, that was very different when we had oil inflation. You know, the U.S. was in a very different place. The Baker Hughes rig count, which we keep an eye on, has not ticked up, but to the extent that oil prices stay elevated, it's going to be interesting to see how America can flex
its new energy dominance i don't think people fully appreciate the dominance that america has with energy yeah and the extent that uh you know america really wants to push this you know we obviously can release strategic reserves from cushing oklahoma but that's a band-aid the real lever the real lever is that america is the best equipped because of land rights and topography to turn on
energy supply, and that's unique. And that's something different in the global economy that we have not seen really in our lifetime.
I mean, we've had a lot of great reporting in the FT by my colleagues from down in Texas and other parts of the shale patch in the U.S. And the issue for them is, I think you're right. I mean, this, like, at what point do we turn the taps on? But somebody who's deciding whether to put a rig up or not needs certainty.
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Chapter 5: What opportunities exist in the current market landscape?
We want to run money based on what the companies are saying and what the policies are coming out of Washington.
Yeah, I'm starting to believe that most of us, as investors at least, would actually be better. If you had a choice between listen to everything that the president says versus listen to none of it, as an investor, I might actually choose the latter at this point.
I'll tell you this. I don't listen to – I read. I don't listen. And I know it's not like a small thing, but I find that sometimes listening can cause emotional reactions. And so I like to read, to consume, and then I'm focused on what the companies are saying, what the companies are doing.
And you really got to be looking for where opportunity lies, because if you're looking for headlines, good luck. No one's going to send you a postcard in the mail telling you when to step into the equity markets.
That's not how it works. They don't ring a bell, as my old boss used to tell me. Don't ring a bell. No, I think the point about emotion is really important. Like, you know, what Trump is great at here. His superpower is causing people to feel strong emotions. This is why, this is what got him to be president.
This is what makes him such a hypnotic figure, is he has like a mainline cable into our emotional wiring. And stepping away from that... you know, is powerful, you know, and just trying to make sure his message may get through to your brain, but you can't let it get through to your emotions.
100%. Just before we end here, John mentioned opportunities. I'd love to just hear what you guys think about. I mean, we talked about the multiple contraction, which has been pretty stunning, especially when you look at a lot of these tech companies, which have been sliding over many, many weeks and months. And I mean, I was looking at Microsoft the other day, trading at the same level it was.
in the post-liberation day sell-off. I mean, do we think that there are some opportunities here in this market? Are we perhaps being distracted by everything else that's going on and forgetting that actually there are some pretty cheap stocks out there right now? John, I guess I'll start with you.
Yeah, I mean, there's no question they're cheap stocks. I mean, I'll share this. And again, I'm biased because I look at stocks all day, and this is what we do. So, you know, I'm always probably, you know, my bent is to be optimistic. But I will say this. Not a lot of folks realize this. The Russell 2000 after today, that's the small cap index, it's up 5.5%. The Russell mid-cap is up 5%.
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Chapter 6: How does the Fed's approach to interest rates influence the economy?
Our video editor is Brad Williams. Our research team is Dan Shallan, Isabella Kinsel, Chris Nodonohue and Mia Silverio. And our social producer is Jake McPherson. Thank you for listening to Prof G Markets from Prof G Media. If you like what you heard, give us a follow. I'm Ed Elson and tune in tomorrow for our conversation with Mark Zandi.