Strait Of Hormuz Shockwaves | S3 E135 | 04-06-26

We’re starting to see economic data reflect the impact of the war with Iran.

In today’s Markets with Megan, Megan Horneman gives insight into how March data is beginning to show signs of supply chain stress, rising inflation pressure, and growing market uncertainty.

She explains why investors are focused not only on oil moving through the Strait of Hormuz, but also on other critical goods like helium, fertilizer inputs, and aluminum. Megan also covers what showed up in the latest ISM Manufacturing and Services reports, why this week’s Fed minutes and CPI report matter, and what it could all mean for markets in the weeks ahead.

Topics covered:
• How the Strait of Hormuz affects global supply chains
• Why inflation pressures may be building again
• What ISM data is signaling on prices and delivery times
• Why the Fed minutes could move markets
• What Megan is watching for in earnings and valuations

Markets may have bounced last week, butrisks may still be building beneath the surface.

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For a full history of this podcast go to https://marketswithmegan.fm

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https://youtu.be/VRprOR8tSAQ

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or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice. Past performance is not a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance 
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Transcript

Why March Data Matters Now

Megan Horneman 0:00

We're starting to get some of that economic data that's reflecting the war with Iran. It's Monday, Mark, April the 6th, and this is Markets with Megan. If you like this podcast, subscribe, hit the alarm bell. You can share it with your friends, family, or colleagues. But we're here today to break down some of the economic data that we've been seeing specifically for the month of March. And this week's a big week when it comes to economic data to get an insight into what this war is impacting from a supply chain and inflation perspective.

Strait Of Hormuz Supply Chain Risks

Megan Horneman 0:31

And let's talk about the supply chain for a second. And I know most people have been focused on oil moving through the Strait of Hormuz, but let's keep in mind that the Strait also is a waterway for many other supply chain types of items. And this could cause disruption in economic data and specifically lead into inflation. Investors don't, you know, it's not that long ago that we were dealing, six years ago, really this month, that we were dealing with some of these supply chain disruptions because of COVID. And it's still fresh in investors' mind what happened to inflation after that. Now we're not saying that the disruption in the Strait of Hormuz is a COVID-like event, but it does put some upside pressure on inflation, specifically here in the near term. The strait not only moves about a fifth of the global oil supply, but it does move about 25 to 30 percent of the world's helium. And helium is something that cannot be replaced. So the helium does need to move. It's used in things like MRI machines and then semiconductor chips, which we know are in high demand right now. Um, fertilizers as well are being impacted. About 20 to 45 percent of the different inputs that go into fertilizer move through that Strait of Hormuz. And while only 5% of the global aluminum moves through the strait, aluminum supplies are already tight. So any disruption there does cause some concern.

ISM Signals Higher Prices Paid

Megan Horneman 1:53

We are seeing the day this show up in some of the reports we've gotten thus far. We've gotten both ISM Manufacturing and ISM Service Index for the month of March. Both of them showed prices paid that have spiked to the highest levels we've seen since 2022. And we're also seeing higher delivery times, meaning that they're waiting longer for the materials needed for products. And then employment in the service side, when you have higher prices, you do tend to see companies pause on employment. We saw employment in that service index drop to the lowest since December of 2023.

Fed Minutes And CPI Week Ahead

Megan Horneman 2:31

Now, a couple other things that we'll get this week is um, first of all, the Fed meeting minutes from their March 18th meeting. Why are these important? Because this is the full full transcript of what we can get at that meeting. And we know that there were a lot of questions around the war and what it may mean for inflation, what the spike in energy prices may mean for inflation. So we want to get a better indication if the Fed is willing to let inflation run hot without hiking interest rates. If there's any talk about that, that could take really disrupt the rally we saw in the second half of last week. The consumer price index for March will also get that, and that is expected to see a pretty big jump in the CPI year over or I'm sorry, month over month data at the headline level because it includes energy. It's expected to rise 1%. Now, at the core level, which is what we're a little bit more concerned about, it's expected to be a little bit more subdued, up three tenths, but we do know that sometimes that acts on a lag defect into the core numbers. We may not see that for the next couple months, what some of these energy prices are doing there.

Market Volatility And Investing Takeaways

Megan Horneman 3:37

Um, now, what does this mean from an investment standpoint? The markets had recovered last week. We saw pretty much all the global indices rally last week. There was some mixed reports about maybe the straight reopening, maybe some ending to the war. We can see today that these reports, again, there was some optimism this morning of a ceasefire that's now been reduced. So this can continue to make headlines and it does um create some jitterness in the market. But the secondary impact of a conflict like this will be what does it do to the economic data? So we still do think there's more chance of weakness in the markets in the coming weeks as we start to get that initial impact from the war, specifically how much is it disrupting the supply chain? What are businesses doing? What is it doing into inflation? We still haven't seen any kind of change to earnings estimates for this year. So we think that that's probably, especially since the war has continued longer than anticipated, that we'll start seeing that as well coming up is when the earnings season kicks off. You may see some reductions in earnings. So we're still in this phase of trying to revalue the market, what that means from an earnings perspective. So unfortunately, we think there might be some more downside. We'll still treat that as a buying opportunity because we don't think this is going to last forever. Um, but we just don't think that valuations where they are right now got cheap enough in order for us to really put a lot of cash to work.

What We Watch Next

Megan Horneman 5:03

That's all we have today. And as we mentioned, there's a lot of data out this week. So we'll be back to discuss those headline numbers and what that means for the investments. Thank you very much. And if you want a history of our podcast, go to marketswithmegan.fm