Markets consolidate near highs

Stocks held firm this week. That was quite a feat, given the conflict and shaky ceasefire. Headlines will continue to drive markets, but strong earnings should provide some support.

First-quarter earnings are running at an 80% “beat” rate, but guidance matters more than everything else. Companies that beat but neither raised nor beat estimates were taken to the woodshed. Those who offered cautious guidance, however, really got smacked.

Next week, on Tuesday, four of the big mega caps report (Microsoft, Google, Meta, and Amazon), and all but Microsoft are expected to be strong. On the same day, the Federal Open Market Committee meets again, but expectations are that they will keep “on hold” until the data suggest otherwise.

Chairman Jerome Powell will be departing next month, and the new chair, Kevin Warsh, will take the reins at the Fed. There had been some question of exactly when Warsh would take over. One U.S. Senator, Thom Tillis, had vowed to vote against his nomination unless the Department of Justice backed off their criminal case against Powell. The DOJ did just that on Friday, abandoning its Trump-directed case concerning cost overruns of the new Fed building.

Warsh, who spoke this week before the Senate Banking Committee, denied there was any quid pro quo between his appointment and the president’s desire to reshape the Fed or loosen monetary policy further. I ignored the whole circus. Given the nature of today’s politics, did anyone expect Warsh to say anything different?

To me, the whole affair was just another TACO moment. It can be chalked up to a president who delights in pursuing one simple strategy—Attack, Deny, and then claim Victory. Whether that works or not in fighting a war remains to be seen.

As it stands, traffic through the Straits of Hormuz is now locked in a double blockade. One conducted by the U.S. Navy and another by the Iranian Revolutionary Guard Navy (that was supposed to be ‘totally destroyed’ but isn’t). Every day this continues is another day when the world's oil supply is diminished, and as it does, the price of oil creeps higher.

Markets were cheered this week when the Israelis and Libyans agreed to a ceasefire. It was supposedly a precondition of the ceasefire with Iran, according to the third-party negotiators and Iran (but subsequently denied by both the U.S. and Israel). So, two weeks later, another Kabuki performance is inked. I would expect a White House photo op shortly as both presidents join Trump in a kumbaya moment.

Of course, no one dared to mention that the party Israel is actually fighting, Hezbollah, was not included in the negotiations. Riddle me this, Trump man, how does this resolve the conflict, if at all? Hezbollah is still an independent, Iran-sponsored terrorist body, roaming at will throughout Lebanon. But heck, what do I know about it?

In any case, rather than selling off hard, equities consolidated this week. It is one of two ways that an overbought market can correct or work off that condition. The longer the consolidation, the higher the probability that markets will regain the primary trend. That trend is still up, so until something negative happens on the geopolitical front or next week’s earnings disappoint, stay the course.

Bill Schmick is a founding partner of Onota Partners, Inc., in the Berkshires.  Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc.  None of his commentary is or should be considered investment advice.  Direct your inquiries to his website at www.schmicksretiredinvestor.com. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.