The stock market should continue to be impacted by the Iranian war this week. However, expectations of strong corporate earnings for Q126, to be reported over the next few weeks, should help support the market. In the background, evidence is building suggesting a speedup in economic growth into the Spring. And, Friday's March CPI offers hope that underlying inflation may stay contained in the face of the oil price shock.
Consensus expects a 13.2% y/y jump in S&P 500 corporate earnings, just below the 14% increase in Q425 but still strong. The macroeconomic evidence supports another strong quarter (see table below). Real GDP Growth should speed up on a y/y basis, based on the Atlanta Fed Model's latest estimate. Base effects help, since Real GDP fell in Q125. The jump in oil prices should help that sector. While economic activity may have slowed outside of the US, based on the Mfg PMI for the Euro Area, the weaker dollar make earnings abroad more valuable in dollar terms.
A slew of surveys points to a speedup in economic activity going into the Spring. Both the Mfg and Non-Mfg ISM Indexes have ratcheted up to a new range in the past few months. The Mfg ISM in March exceeds the Q126 average. Although the Non-Mfg ISM slipped in March, it was the highest level since December 2024 except for the prior month. The Logistics Index has risen in each of the past 3 months. This has been the case for the Philadelphia Fed Mfg Index as well.
The Unemployment Claims data show little change in the pace of layoffs but a possible improvement in hiring. Initial remain in the range seen since the end of 2024. Continuing made a new low for the move down in the latest week. If they stay at this level for the next couple of weeks, they would suggest a speedup in April Nonfarm Payrolls (at least strike-adjusted).
Meanwhile, the March CPI contained some encouraging signs for the Fed's inflation fight. Although the Total was boosted by the jump in energy prices, food prices were flat in grocery stores and slowed at restaurants. The Core printed a modest 0.2% m/m even though the pass-through effects of tariffs and higher oil prices appeared in some components. The Report shows that many factors impact inflation, some positive and some negative. Unfortunately, the components boosted by tariffs and oil prices appear to be weighted more heavily in the PCE Deflator than in the CPI. They also may get more weight in this week's March PPI Report, as consensus looks for a high 1.2% m/m Total and +0.5% Core. Nevertheless, the Fed is right in waiting to see how all settle down.
Euro Area
Real GDP Oil Prices Trade-Weighted Dollar AHE Core CPI Mfg PMI
[ y/y percent change ] (level)
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