Just when you hoped inflation finally got the hint the party was over, it climbed back in through the bathroom window and is now setting up a tent in your living room.

It’s only spring and still chilly, but in the March consumer price index, inflation came in red hot.

• Headline inflation rose 3.3% year over year, up from 2.4% last month—the biggest monthly jump since June 2022.
• The culprit was surging energy prices triggered by the Iran war. Gas prices jumped 21%—the biggest monthly gain in 59 years.
• Thankfully core CPI (which strips out food and energy) rose just 0.2% for the second straight month, suggesting underlying inflation hasn’t meaningfully accelerated.

That’s not all: Yesterday, the personal consumption index for February (the Fed’s preferred inflation gauge) showed that inflation was still sticky, but not skyrocketing, before the recent energy shock: Both headline and core prices rose 0.4% on a monthly basis, roughly in line with expectations.

The Fed’s pickle

While inflation is picking back up, shoppers are down bad. Consumer sentiment plunged to a record low this month, according to a University of Michigan survey. It’s understandable why: The energy shock from the Iran war is just starting to make its way through the economy, and is expected to spike the costs of everything from airline tickets to groceries.

The Federal Reserve’s job has never been a simple one, but the economic whiplash of the past few months is making this economic policy decision a game of 4D chess. If the Fed cuts rates, it could re-stoke inflation.But if the central bank decides to hike rates—a move members started to soft launch last month—it would be a blow to the already sluggish economy.

The silver lining: While none of this news sounds particularly optimistic, according to the pros, if the Iran war does in fact wind down, higher levels of inflation shouldn’t last for long.

“Energy is back in the driver’s seat for inflation, but the broader path remains one of gradual stabilization, suggesting the Fed can remain patient,” Chief Investment and Portfolio Strategist at BlackRock Gargi Chaudhuri explained in a note. “Markets will look through the energy-driven headline strength and focus on the softer core trend.”

That underlying optimism is why traders actually upped their bets that there will be a rate cut—not because inflation is cooling today, but because falling oil prices could quickly reverse the recent spike.

Then again, the April 7 ceasefire is by no means a done deal. TLDR: The more info we get, the less anyone knows what will happen next.—LB

🟢 What’s up

• CoreWeave jumped 10.87% after securing a multiyear deal with Anthropic to provide compute power for training and running its AI models.
• TSMC gained 1.40% as first-quarter revenue surged 35% year over year, driven by strong demand from customers like Apple and Nvidia.
• Women’s healthcare company Organon rose 27.79% on reports that Sun Pharmaceutical Industries is preparing a $12 billion takeover bid.
• Coherent climbed 8.21% after JPMorgan Chase raised its price target, citing AI-driven demand for data center networking.

What’s down

• Palantir Technologies fell 1.86% as investor Michael Burry reiterated his bearish stance, maintaining long-dated puts against the stock.
• CrowdStrike and Palo Alto Networks declined 3.97% and 6.74%, respectively, as concerns around AI disruption continued to pressure cybersecurity names.
• ServiceNow slipped 7.58% following a downgrade from UBS, which flagged softer revenue beats and weakening forward indicators.
• Ares Management slid 4.14% on reports of a potential $20 billion direct lending fund amid rising redemption pressure.
• Fair Isaac Corporation (FICO) dropped 13.99% amid broader market pressures weighing on the stock.

135 ships sailed through the Strait of Hormuz every day on average before Iran shut the waterway. On Wednesday, a day after the US and Iran agreed to a ceasefire, four ships passed through the Strait. On Thursday, eight made the run.

It’s not much, but it’s a start. And while the world is rooting for that number to grow so that oil can begin to flow out of the Middle East once again, the irony is that Iran may want the Strait opened more than anyone else. The country is reportedly establishing a toll system for ships that pass through the Strait, charging them $1 per barrel of oil in a clandestine, rapid-fire crypto transaction designed to avoid sanctions.

Considering an estimated 20 million barrels of oil passed through the Strait every day before the war began, it’s easy to see how such a system would be a boon for Iran’s $7.8 billion crypto economy. But while Iran stands to make a pretty penny from the tolls, it’s bad news for the US dollar.

The greenback became the global economy’s currency of choice after the US and Saudi Arabia agreed to the petrodollar system back in the 1970’s, but the dollar has lost its edge lately as international investors hesitate to put their money into what was once an untouchable safe haven. A crypto toll undermines the dollar’s position even further, as do reports that Iran is willing to accept the Chinese yuan for toll payment.

In other words: The ceasefire with Iran is holding for now, but the battle to end the dollar’s run as the global benchmark currency is heating up.—MR

Amid geopolitical tensions, tariffs, and policy uncertainty, retail investors are turning bearish—moving out of equities and sitting out recent dips after last year’s risk-on run. At the same time, baby boomers are beginning to draw down their portfolios, shifting into safer assets or cash to fund retirement, adding another layer of selling pressure.

Institutional investors are following suit: Commodity trading advisors (CTAs) dumped roughly $55 billion of US equities last month, and have now flipped net short by about $18.4 billion.

It’s understandable why investors are feeling jittery. There’s just one problem: They’re getting this all wrong.

Earnings tell a different story

Earnings season kicks off next week, and the pros are predicting one of the best reporting periods in recent memory.

Wall Street is forecasting roughly 16% Q1 earnings growth for the S&P 500, the strongest in four years. Deutsche Bank is even more bullish, predicting 19% earnings growth due to improving cyclical trends and a weaker dollar, which just posted its sharpest quarterly drop in about five years.

In addition, among companies issuing outlooks, 54% expect earnings to beat expectations—well above the five-year average of 42%, and the highest share since 2021. On top of that, a record number of firms have issued positive revenue guidance for this quarter.

Sectors to watch

This earnings rebound is likely to be driven by a handful of key sectors, according to Deutsche Bank.

• Mega-cap and tech are expected to see earnings growth jump to nearly 36%, up from 27.5% last quarter, with semiconductor companies at the center of that acceleration.
• Financials are another bright spot: Bank stocks are starting to look attractive, trading at roughly 12x forward earnings—a 40% discount to the S&P 500’s 20x. Earnings growth in the financials sector is expected to rebound from around 11% last quarter to 20%.
• Earnings growth for industrials is expected to accelerate from 2.8% to 7.9%, driven by AI demand and improving manufacturing activity, while consumer cyclicals may stabilize as earnings declines narrow from 7.5% to 1.6%.

Bottom line: Investors are bracing for uncertainty, but earnings are what ultimately drive stock prices over the long run—and while it’s easy to get caught up in geopolitical headlines and policy noise, the underlying fundamentals are still holding up. Maybe markets need a new version of EBITDA: earnings before Iran, tariffs, and Donald announcements.—SY

• A new report warns that insurance companies are holding more risky debt than they did in 2007 before the financial crisis.
• The billionaire class is rushing to back Bill Ackman in a family-office feud over $2 million that he detailed via a characteristically lengthy X post.
• Pawn shops across the country are seeing a rise in demand for loans due to higher gas prices.
• Believe your eyes: President Trump’s memecoin is hosting a “memecoin conference” at Mar-a-Lago.
• Treasury Secretary Scott Bessent and Fed Chair Jerome Powell assembled a meeting of bank executives to discuss fears that Anthropic’s latest AI model will open up vulnerability to cyberattacks.
• European airports could run out of jet fuel in as little as three weeks.

Monday: Goldman Sachs kicks off a new earnings season before the bell, a week of housing market reports begins with the US March existing home sales reading, and we’ll hear from Fed governor Stephen Miran. Also, the spring meetings of the IMF and World Bank begin in Washington, DC.

Tuesday: We’ll get another look at inflation with the PPI reading, then small businesses grab the mic with the NFIB small business optimism index. Speaking of grabbing the mic, Fedspeak abounds with appearances from Fed governor Michael Barr, Boston Fed President Susan Collins, Richmond Fed President Tom Barkin, and Philadelphia Fed President Anna Paulson. And earnings continue to pour in from the likes of JPMorgan Chase, Johnson & Johnson, Wells Fargo, Citigroup, and BlackRock.

Wednesday: ASML, Bank of America, and Morgan Stanley keep the earnings reports rolling, while Fedspeak continues with Fed Vice Chair for Supervision Michelle Bowman, Fed governor Michael Barr, and the release of the Fed Beige Book. Also, don’t forget about the import price index and the Empire State manufacturing index.

Thursday: We’ve got earnings from TSMC, Netflix, PepsiCo, Abbott Laboratories, Charles Schwab, and Bank of New York Mellon. Then there’s the usual weekly jobless claims report, the Philadelphia Fed manufacturing survey, and the industrial production/capacity utilization report. We’ve also got words of wisdom from New York Fed President John Williams and Fed governor Stephen Miran.

Friday: Earnings include Ally Financial, Truist Financial, Regions Financial (noticing a pattern yet?), State Street, and Ericsson. The real estate reports wrap up with March housing starts and building permits, and we’ve got one last bit of Fedspeak from Richmond Fed president Tom Barkin and Fed governor Christopher Waller.