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The most important charts and themes in markets and investing…
1) Return of Risk
The S&P 500 is now down 7.6% from its January peak, its biggest drop since last April’s tariff turmoil.
While this feels like a big drop, we see drops of this size or more in most calendar years.
In fact, in the last three years, there have been larger declines at some points (-10.3% in 2023, -8.5% in 2024, and -18.9% in 2025). The market will recover from all these conditions and post huge gains (+26.3% in 2023, +25.0% in 2024, and +17.9%).
Will we see a similar recovery this year?
No one knows. That’s the risk you take as an equity investor, and the main reason why stocks produce higher long-term returns than bonds and cash.
In the short term, a lot will depend on what happens with Crude Oil and the war in Iran.
Big questions remain: how long will the war last, will we see an increase in troops on the ground, and how long will the supply of Crude Oil and other commodities be restricted?
We still don’t have clarity on these questions, which continue to put pressure on global commodity prices.
And rising inflation expectations and interest rates have pushed down not only stocks but also bonds.
2) Interest rate increase before interest rate decrease?
The Cleveland Fed now estimates CPI inflation at 3% for March, up from 2.4% in February.
The Fed will prepare this report before they meet again on April 29, to eliminate the possibility of a rate cut.
We have seen dramatic changes in Fed Funds Futures over the past few weeks.
At the start of the year, the bond market predicted two Fed rate cuts in 2026.
And they currently estimate a higher probability of INCREASING PRICES (25%) compared to CUTTING THE BUDGET (8%).
The data supporting this potential upside goes beyond recent commodity price increases. Consumer (CPI) and Producer Prices (PPI) in the US have increased more than double the Fed’s target of 2% over the past five years.
And this is the data before the Iran war started. Over the past month we have seen US gas prices rise by 35%, which is the largest single month jump in the last 30 years. This is the highest level since August 2022.
One thing is certain: this global inflation rate graph will look very different a month from now. The wave of global monetary easing we saw over the last few years has been over for the time being.
3) Oil Surge and Recession
Will a spike in oil prices cause a recession in America? That’s a question investors are starting to ask as Consumer Discretionary shares ($XLY ETF) are now down 10% on the year while Energy shares ($XLE ETF) have gained 33%.
There are several historical examples of oil price spikes contributing to an economic downturn:
- 1973-74: The Arab Oil Embargo causes a spike in Oil prices, and the US economy falls into recession in 1973-75.
- 1979-80: The Iranian Revolution causes a spike in oil prices, and the US economy experiences a double-dip recession (1980, 1981-82).
- 1990-91: The Gulf War causes a spike in oil prices, and the US economy falls into recession (1990-91).
- 2000: Oil prices soar near the peak of the dot-com bubble and the US falls into recession in 2001.
- 2007-08: Global demand pushes Crude Oil prices to a record $147/barrel, and the US economy experiences the worst recession since the Great Depression.
The spike in oil prices is not the only reason for this decline, just one of the contributing factors. However, because the US economy is heavily dependent on US consumers (>70% of GDP), continued oil price increases/inflation could have a meaningful impact.
However, there are always exceptions, and we saw it most recently in 2022 when inflation and oil surged higher following the start of the Russian-Ukrainian war. Although US Real GDP declined in Q1 of the year (-1%) and after revision was only slightly higher in Q2 (+0.6%), no official recession declaration was issued by the NBER. Oil and inflation fell again and the diversified US economy weathered the storm.
So will we see a recession this year? Here are the results of my latest poll on X…
4) The Debt Spiral Continues
The US National Debt topped $39 trillion last week for the first time, more than doubling in the past 10 years.
The US National Debt has now increased by $2.8 trillion since the Debt Limit was raised last July. The Federal Government continues to borrow from our future to spend money like drunken sailors today. Next stop: $40 trillion.
5) Another Record High in US Household Net Worth
US Household Net Worth increases by another 9% in 2025, increasing by more than $14 trillion.
Total Household Net Worth now stands at a record $175 trillion, more than doubling over the last decade.
Main drivers: rise in US house prices (+88%) and US stock prices (+298%)…
And that’s all for this week. Thanks for reading!
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