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Market Recap: U.S. Equities Are Rallying, but There Is No Relief
The United States equity market has shown signs of life during an unfavorable period. As of April 2, the closing levels of the S&P 500, the Dow Jones Industrial Average, and the Nasdaq were 6,582.69, 46,504.67, and 21,879.18, respectively. For the week, the S&P 500 increased by 3.4%, the Dow gained 3.0%, and the Nasdaq jumped 4.4%. Despite those gains, all of the major indexes remain negative on a year-to-date basis, posting returns of -3.8%, -3.2%, and -5.9%, respectively.
That is what the current situation looks like in numerical terms. Buying on dips is still taking place, but investor sentiment remains weak. According to Reuters, the S&P 500 recently completed its worst quarter since 2022 because of a decline driven mainly by the war involving Iran and rising energy prices. Matthew Miskin of Manulife John Hancock Investments was cited as saying that it will be hard for the market to overlook problems in the Middle East, including concerns over oil prices. In addition, Reuters noted that the index continues to trade nearly 6% below its all-time high set in late January.
The key driver of bearish pressure on the stock market is oil. Reuters reported that U.S. crude traded above $110 per barrel this week after previously rising above $100, the first such move since 2022. Commenting on the matter, Doug Huber of Wealth Enhancement Group said that “the market is pricing off oil,” which explains why stocks are reacting so sensitively to developments involving both the war and the Strait of Hormuz. With oil prices soaring, investor concerns about rising inflation, pressure on consumer spending, and a longer period of unchanged Fed policy have become more understandable.
That issue is becoming increasingly important. Reuters pointed out that the March CPI report, scheduled for release on April 10, is projected to show a month-over-month rise of 0.9%, while core CPI is expected to rise 0.3%. Reuters also noted that the national average gas price moved above $4 per gallon this week for the first time in more than three years. In other words, the stock market is waiting for confirmation that the energy shock caused by geopolitical tensions is beginning to show up in the broader price trend across the country.
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The labor market has also remained resilient despite growing concerns. Reuters reported that U.S. nonfarm payrolls increased by 178,000 jobs in March, well above expectations, while the unemployment rate declined to 4.3%. Those figures are positive because they suggest that the economy is still holding up well. Nevertheless, strong job growth can also be viewed as a negative for stocks if it leaves less room for Fed rate cuts. Reuters noted that the stronger-than-expected report is keeping the central bank on hold amid persistently high inflation and rapidly rising energy prices.
Another factor supporting stocks is earnings expectations. Reuters reported that the S&P 500 is expected to deliver earnings growth of 14.4% year over year in the first quarter. That is a strong figure, and it is giving the market hope that bullish momentum can still be supported by fundamentals despite geopolitical pressure. If corporate earnings come in as strong as expected, they could offset at least part of the inflation risk.
Conclusion
The U.S. stock market appears to be in a push-and-pull phase right now. On the bullish side, it has support from strong jobs data, improved weekly index performance, and solid earnings estimates. At the same time, investors still need to worry about rising oil prices, inflation risk, and the lack of clear reasons for the Fed to cut rates in the near term. While the recent rally is a positive sign, it should not yet be viewed as the end of the correction. The stock market still appears to be driven more by energy shocks and geopolitical developments than by a simple bullish trend.