Investors cheer on shaky Iran ceasefire, for now

MANHATTAN (CN) — Wall Street recouped much of the losses over the last few weeks, banking that the fragile ceasefire with Iran would cause oil prices to drop.

The temporary ceasefire imposed on Tuesday sent oil prices dropping and stock prices skyrocketing, with the Dow Jones Industrial Average gaining about 1,300 points as soon as markets opened. Oil prices dropped under $100 per barrel for the first time in nearly a month, with Brent futures hitting $94 Friday afternoon.

Even though strikes in Lebanon and confusion in the Strait of Hormuz dulled gains, by the closing bell on Friday the Dow gained 1,412 points for the week, while the S&P 500 and Nasdaq increased 234 points and 1,023 points, respectively.

While progress towards peace, however wobbly, helped equities, the week’s two big inflation reports didn’t.

On Friday, the Bureau of Labor Statistics’ consumer price index showed a 0.9% increase for March, about what was expected but triple the previous month’s price increase. Compared with a year ago, the index is now up 3.3%, also worse than the 2.4% year-over-year number from February.

“The first inflation data from after the war in Iran confirmed what everyone was worried about,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management, adding the oil shock was to blame. Core CPI, which excludes volatile items like energy and food prices, increased only 0.2% in March, in line with expectations.

Zaccarelli added the duration of the war will play a crucial part in inflation for the rest of the year and how the Federal Reserve responds with interest rates.

“If the inflation shock is more long-lasting they will have no choice but to sit on their hands for the entire year,” he said.

The other inflation data this week did not account for the Iran war, but it still showed prices increasing.

The personal consumption expenditures price index, which is the Federal Reserve’s preferred measure of inflation, came in 0.4% higher for February. Core inflation, which excludes volatile energy and food prices, increased by the same measure, according to the Bureau of Economic Analysis.

Personal income growth declined by 0.1% in February, worse than expected, and the personal savings rate fell sharply from 4.5% in January to 4% in February. The report was delayed about two weeks due to the government shutdown last fall.

Given the rise in inflation and worries about oil prices, the Fed is likely to keep rates steady when it meets again at the end of this month. According to the minutes from the Fed’s March 17-18 meeting, most of the central bank’s voting members argued oil prices increased the upside risk to inflation and the downside risk to employment.

“It is entirely possible that the Fed delivers no cuts this year, and that the next policy move could, in fact, be a hike,” Gregory Daco, chief economist at EY-Parthenon, said in a statement, adding that the minutes show the Fed was “distinctly hawkish” at its last meeting.

That sentiment was echoed earlier this week in an interview with Federal Reserve Bank of Cleveland President Beth Hammack, who said “I can foresee scenarios” where a rate hike becomes necessary to combat inflation.

On Monday, the Institute for Supply Management’s services index decreased a few points for March, though the index remains in expansion territory. Under the hood, some negatives are more glaring than the headline number, though.

Commentary from businesses collected by ISM show companies worry about precious metal market volatility due to the war with Iran, which also caused the “prices paid” part of the index to increase by nearly 8%, its largest monthly increase in more than 13 years.

“The mixed signals illustrate the uncertain time for most businesses,” said Jeffrey Roach, chief economist at LPL Financial. “Like the post-pandemic reopening years, healthy supply chains will be key to the growth and inflation outlook for the balance of 2026.”

Roach added that “a prolonged struggle over the Strait of Hormuz into May and June would markedly darken the outlook for the U.S. and the global economy.”

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