A year ago today, when the president called off his "liberation day" tariffs, the Dow soared almost three thousand points and the S&P 500 jumped 9.5%. In a single day. And we basically never looked back.
This time, things look a little different. For starters, the market's reaction to the Iran "ceasefire" yesterday was more muted. The Dow rose 1,325 points, and the S&P was up 2.5%. Granted, the selloff into yesterday had been shallower than last year's too.
But the real sticking point is the oil price. A year ago, West Texas Intermediate crude was selling for $62 a barrel, and gasoline was $3.23 at the pump, on average. Now, even after oil prices tumbled yesterday, WTI is trading higher this morning, at $99 a barrel, and the national average for gasoline has risen to $4.16.
Piper Sandler does a daily consumer confidence survey, which posted year-to-date lows last Tuesday, as "two-thirds of respondents [say] they're cutting back elsewhere to offset" higher gasoline prices. Since then, gasoline is up another eight cents a gallon. And pump prices may be heading higher still.
"We are looking at well over 300 million barrels of product losses across gasoline, diesel, and jet fuel," Amrita Sen of Energy Aspects told us on the show yesterday. "That will probably take two years to recover." Those shortages will drive prices higher in order to destroy demand, she warned. "I wouldn't be surprised, let's say May or June, we see $5-plus gasoline prices in the U.S."
Economists aren't completely panicking yet, but it's raising some concern. We had a big debate yesterday about whether the Fed should hike or cut rates in response to the oil price shock. The market is similarly split on what the next move might be, but is leaning towards a cut. Datapoints like today's rise in new jobless claims add fuel to that position.
"My guess is the U.S. economy will suffer only a mild and temporary rise in inflation pressures, but real economic growth may weaken more and for longer than most now appreciate," cautioned Jim Paulsen this morning.
Investors now seem conditioned from last year to ignore any warnings about the president's policies slowing the economy. I recall the dinner of supply-chain executives I attended last spring, when almost every single person predicted a recession in 2025 stemming from the tariff moves. Instead, the economy gained steam into year-end.
I would feel a lot better about that playbook this time around if gasoline prices tumble, and consumer confidence looks to be quickly be on the mend.
See you at 1 p.m!
Kelly