“Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.”
-Warren Buffett
Here’s what you need to know this week:
- Stocks continue to fall and enter “correction” territory while earnings remain resilient
- Markets begin to rebound on hopes of peace in Iran
Correction
The Iran War has continued to wreak havoc on the investment markets and has pushed stocks to new lows on the year.The selloff has now pushed the NASDAQ and Dow Jones indices into “correction” territory (meaning a decline of 10% from recent highs) and the S&P 500 is closely behind:
Obviously, no one likes seeing the value of their investments decline, but market corrections are more common than you might think. Since the end of World War II the markets have endured 37 market corrections, an average of one every 2.2 years[1]. However, there are two ways that stocks decline: earnings and multiples. Stock prices (in theory) are based on a multiple of a company’s earnings known as the Price-to-Earnings (P/E) ratio.
When earnings fall, stock prices typically follow suit; other times, stocks fall even when earnings remain strong:
As you can see, the S&P 500 has rolled over despite the component companies charting new highs in earnings. This is called multiple compression, meaning the multiple of earnings that investors are willing to pay for a stock has gone down. This shows us that investors are anxious about a potential downturn in earnings that has not yet materialized. Will it materialize? Maybe, but so far corporate earnings are still in good shape.
Peace in Iran?
Once again I must start with my weekly caveat that things are moving quickly and the situation in Iran may be different by the time you read this. As of writing (Tuesday afternoon), there are small signs of advancements towards a peace deal. On Sunday, Iran allowed 20 ships to pass through the Strait of Hormuz unharmed in what President Trump called “a sign of respect”[2].
Stocks rebounded sharply yesterday on news that the conflict may end sooner than expected. Iran’s state news agency reported that Iranian President Masoud Pezeskhian told European Council President Antonio Costa that Iran is ready to end the war if given certain guarantees[3]. This echoes President Trump’s remarks that he does not want a drawn-out conflict. The S&P 500 bounced nearly 3% on the day yesterday, and more concrete details of a peace plan may drive stocks back into green territory on the year.
What Else
- Twelve US troops were injured by an Iranian missile striking a US base in Saudi Arabia
- President Trump has eased the embargo on Cuba in an effort to reopen diplomatic relations
- Congress continues to spar over the details of a bill that would fund DHS and ICE
- Hackers claiming to be affiliated with Iran obtained emails and photos from the personal email account of FBI Director Kash Patel
- Arizona plays Michigan and Illinois takes on UConn in the Final Four this weekend
What We’re Reading
NASA’s Artemis II mission has cleared all pre-checks and is scheduled to launch this evening at 6:24 PM ET. This will be NASA’s first mission to the moon since 1972 although this mission will orbit the moon instead of touching down.Click below to read about the final preparations, goals for the flight and photos of the rocket at the Kennedy Space Center, including a double rainbow that observers are calling a good omen for the flight:
What’s Happening Downtown
The Myriad Gardens’ annual Tulip Festival has been extended to this Saturday & Sunday. The festival features more than 100,000 tulips planted across the Myriad Gardens and Scissortail Park. This event is free to attend, runs from 9:00 AM to 6:00 PM on both Saturday and Sunday and will also include a market of local vendors, live music and food trucks. Click below to learn more:
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Written by: Kane Ogle, CFP®
Steve Beck, Kane Ogle, CFP®, Amber Eduvigen, CFP®, Cale Olbert, CFP®, Brett Valentine, CFP®, Brandon Ingerson, Bill Daniel, Sam Postich, Jenni Hess