The State of Play
Bueller? ... Buller?
Howdy everyone! Hope you got some rest because this week should be action packed! The markets are still waiting on a resolution with Iran, but we aren’t. So lets do this.
OK, so coming into this week, I keep thinking the market is still doing something many people don’t quite trust, which is looking through a mess before the mess has actually cleared. They discount what might be coming while others are still staring at what’s right in front of them. This is what markets do and we have largely shared the same sentiment.
However, as this conflict lingers longer than we expected, it wouldn’t be particularly prudent to act as though our forecasts won’t be affected.
Over the weekend, Iran didn’t become a dramatically worse story, but it didn’t become a cleaner one either, and that may matter more. There’s a difference between shock and friction. Markets can sometimes absorb shock faster than they can absorb a slow grinding uncertainty that sits in the machinery and quietly raises the cost of everything.
Meanwhile, crude has held high enough to keep people uneasy, but not so high that markets have treated it like a systemic event. For now it feels more like a tax than a panic and that distinction matters, because one can be lived with and the other starts changing behavior. If energy stays contained, even elevated, markets may continue to look through it. If it starts bleeding into freight, insurance, gasoline and inflation expectations in a bigger way, then the conversation changes.
And that’s the other thing hanging over this week.
Inflation still feels more nuisance than spiral to me, but nuisance can become policy trouble if it lingers long enough. This is where the three clocks idea comes back. Markets react one way, households another, politicians another still. Sometimes those clocks tick together and sometimes they don’t. Right now it is feeling a little out of sync.
What I’m Watching — Economic Calendar
· FOMC Decision and Powell — The decision itself is probably a hold, and almost everyone knows it. What matters is the press conference. Powell has been walking a careful line between acknowledging that inflation has been sticky and not wanting to spook a market that is still hoping for cuts later this year. Any shift in tone — even a subtle one — will get amplified. Watch how he handles the inflation question, because that’s the one that moves things.
· Q1 GDP — The first real look at how the economy actually held up while everyone was debating whether it was holding up. The whisper number matters as much as the print here. A softer-than-expected read will reignite the slowdown conversation. A resilient one and the soft landing crowd gets louder again.
· Core PCE — The number the Fed actually watches, which means it’s the number the market will pretend not to be nervous about until it is. If it comes in hot after last month’s stubbornness, the rate cut timeline gets pushed and the “one more hike” conversation comes back off the shelf. If it behaves, Powell gets a little more breathing room than he probably wants to admit.
· Employment Cost Index — A bit under the radar compared to the others but worth paying attention to. Wage pressure has been the quiet engine underneath the inflation story. If labor costs are still running warm, that’s the thing that makes the Fed’s job harder even when everything else starts to cooperate.
· ISM Manufacturing — More of a temperature check than a market mover, but it adds to the picture. Has the manufacturing sector found a floor, or is it still drifting? In a week with this much data, context matters.
What I’m Watching — Earnings
This week is not subtle. We get a huge chunk of the leadership complex reporting, and I think it will be less about whether companies beat consensus by a few pennies and more about what they actually say. Guidance, tone, and capital allocation will matter more than the headline numbers.
And running underneath all of it is the same question: is the great AI buildout starting to shift from construction toward optimization? Because if it is, that tells you something important about where capital moves next.
· Microsoft — The bellwether for enterprise AI adoption. Azure growth will get the most attention, but what Satya says about customer spending patterns and whether AI tools are converting from experiment to budget line item matters just as much.
· Alphabet — Probably the most complicated read of the week. Search is being disrupted from multiple directions at once, and the market knows it. Cloud growth and any update on how AI is being woven into the core business will be what people are actually listening for. The advertising numbers will tell you something about the macro too.
· Meta — The efficiency story either continues or it starts to fray. Margins will matter more than revenue here. If Zuckerberg’s year of efficiency has legs, the market rewards it. If costs are quietly creeping back and the AI spending ramp is accelerating faster than the revenue case supports, that’s a different conversation.
· Amazon — AWS is the number, full stop. But don’t sleep on what they say about the consumer. Retail margin trends and any commentary on how the lower-income shopper is holding up will add color to the broader economic picture in a way that no government data point quite captures.
· Apple — Services revenue and any update on China will dominate. iPhone demand has been uneven and everyone knows it. What matters is whether services can keep carrying the story and whether there’s anything new to say about the next product cycle.
· Visa — The best real-time window into consumer spending we get from any single company. Cross-border volumes will tell you something about travel and global demand. Domestic spending trends will tell you whether the American consumer is still showing up or starting to hesitate.
· ExxonMobil — In a week where oil has been part of every macro conversation, Exxon’s commentary on demand, production and the margin environment will add some grounding to what has otherwise been a lot of speculation.
The tension between growth bending but holding and inflation not quite done misbehaving is still the tape right now. So I’d keep one eye on rate volatility through all of it. We’ve talked about this bifurcation before, where equities have been willing to levitate while rates occasionally mutter under their breath. If that muttering gets louder this week, pay attention. With this much data hitting at once, it wouldn’t take much.
I’d also add Europe to the list of things worth watching. It keeps getting treated like a side story, even though fiscal spending, defense buildout and growth there may matter more to markets than people appreciate.
So where does that leave us?
Honestly, not terribly different from where we’ve been.
The market still looks like it’s trying to look through the fog, but it is doing it selectively. It is not throwing money indiscriminately at everything. It seems willing to pay for scarcity, for productivity, for bottleneck relief and a little less willing to indulge speculation for speculation’s sake.
I don’t see this as complacency as much as I see discernment. Markets aren’t ignoring risk, it’s acknowledged and has priced it in some areas, but it’s still peering over the hill.
Stay sharp, stay calm, and let’s see what crawls out from under all this data.
Luke Perry
Whalen Financial, Portfolio Manager