Per our PWA Index summary below, the economy is sending very mixed signals: The labor market remains relatively strong while consumer sentiment is literally in the gutter (blame inflation)... Business sentiment still reads expansion, however "input costs are rising sharply."
If you haven't had a chance yet, be sure to read my commentary from last Monday titled How Long Can the Economy Hold Up? It will give you some insight into why the greatest oil supply disruption in history has yet to tilt the scale toward a US recession.
And if you're thinking -- like so many clearly are -- that once the Strait of Hormuz is back in business; that things (read oil prices) will return to normal, be sure and read Thursday's Quotes of the Day post, where I highlight Exxon's earnings call.
Also, alas, if you're thinking that this is all about just oil, you have to think again... Co-founder of the highly respected macro research firm Gavecal, Louis Vincent Gave, was on the MacroVoices podcast this week pointing out the following.
From the transcript, emphasis mine:
"...of course not just oil, it's natural gas, and it's fertilizer, and it's urea, and it's helium, and it's like all sorts of stuff.
We don't wanna reduce the Middle East to just the oil. I think perhaps most importantly, this whole war highlights a message we already had gotten with the Houthis. But the days when you could always count on the US Navy to patrol the oceans and to deliver whatever goods you ordered are now clearly over.
And this isn't because of Trump, and this isn't because of Iran. It's just in this new age of drone warfare, controlling the world's ocean has just become impossible. And this matters a lot because I think it really means that every country that for years and years just always saved in US Treasuries because you could... or you knew that in a crisis, the Treasury market is the biggest, deepest liquid market in the world.
You could always transform your Treasuries into whatever commodity you needed. That is no longer true. Look at India. India's got $700 billion in US Treasuries, and they're out of fertilizer. And so they call China and say, "Hey, you guys have a lot of fertilizer 'cause you've been smart enough to stockpile it for the past decade. Can you sell us some, please?" And China says sorry, mate, I'd rather keep what I have. But good luck selling your Treasuries for fertilizer."
I don't wanna belittle what we're going through. I think it's a dramatic shock to the system. I think coming out of this, every country will say, "You know what? I can't sprinkle treasuries on my field to grow wheat. I can't shove treasuries into my car to make it go."
So every country will have to build inventories of refined products, inventories of fertilizer, inventories of stockpiles of oil. If you want to essentially have an independent monetary policy and an independent foreign policy, you will now need to stockpile commodities. It's just that simple because the days when you can rely on the United States to bring you what you need are now over. And I think this was already obvious for anybody who paid attention following Russia-Ukraine and following Houthis -- but now it really is in your face."
Yes, as you might imagine, among other considerations, this only bolsters our structurally-bullish case for commodities.
Stay tuned…
Our PWA Index took a leg lower this week... However, overall conditions, fiscal policy, monetary policy, etc. -- along with our current assessment of go-forward probabilities -- keep us on-balance constructive (i.e., out of the outright recession camp) for the time being.
Here's your weekly update:
PWA Index — Week of May 4, 2026 | Score: −8.96 | Deterioration*
Markets closed Friday at record highs, with the S&P 500 finishing at 7,399 for its sixth consecutive weekly gain, as a stronger-than-expected jobs report offset continued concern about inflation and the ongoing conflict in the Middle East. The economy added 115,000 jobs in April against a consensus estimate of just 55,000, and unemployment held steady at 4.3%. It was a genuine beat, and the labor market deserves credit for its resilience — initial claims are at a two-year low, continuing claims are the lowest since 2024, and private sector hiring tracked by ADP came in at 109,000, its strongest reading since January.
That is the good news, and it is real. The harder news is what arrived alongside it.
The University of Michigan's preliminary May consumer sentiment reading came in at 48.2 — an all-time low in a survey that dates to 1952, and only the second sub-50 print in its history. Declines were broad-based across income, age, education, and political affiliation. Consumers are being squeezed by gasoline prices that remain above $4 a gallon and by inflation expectations that are moving in the wrong direction. One-year inflation expectations jumped to 4.7% in May, the largest single-month increase since April of last year, while long-run expectations climbed to 3.5% — their highest since last fall. When households begin to expect higher inflation not just in the near term but over the next five years, it changes how they behave, and not in ways that are constructive for the economy.
The inflation data confirmed by this week's Bloomberg inputs reinforces the picture. CPI swap markets — which reflect what professional investors expect inflation to average over the next two, five, and ten years — remain elevated across the curve despite modest declines this week. ISM's April manufacturing survey showed prices paid by factory managers at 84.6%, matching the highest level since April 2022 and representing a surge of 25 points over just the past three months. Input costs are rising sharply, driven by energy, steel, aluminum, and transportation — all of which trace back in some measure to the disruption of shipping through the Strait of Hormuz.
The strait itself remains effectively closed. WTI crude oil eased to approximately $95 this week from roughly $101 last week on renewed hopes for a diplomatic resolution, with reports that the United States has submitted a memorandum of understanding to Iran through Pakistani intermediaries. Tehran has confirmed it is reviewing the proposal. We have written about the ceasefire-Hormuz decoupling thesis for several weeks now — a diplomatic agreement to stop fighting does not automatically reopen the world's most important oil chokepoint, and any physical resumption of tanker flows will depend on insurer confidence, infrastructure assessment, and a broader settlement that includes Iran's nuclear program. The market is trading optimism; the physical reality is likely to be more gradual. The Baltic Dry Index jumped 11% this week, a reminder that global freight markets are still absorbing the rerouting of shipping away from the Persian Gulf.
Against this backdrop, the PWA Index — our proprietary 67-field macro conditions oscillator — moved to −8.96 this week from −4.48 last week, its largest single-week decline in the current sequence. The score reflects an economy that is still growing, still beating expectations on the labor side, and still posting expansion in both manufacturing and services activity — but doing so alongside re-accelerating inflation, collapsing consumer confidence, a savings rate at its lowest since 2008, and a housing pipeline that is deteriorating as mortgage rates climb back toward 6.5%. This is the stagflationary configuration we have been tracking since late February, and this week's data brought it into sharper relief.
Portfolio positioning remains well-aligned with this environment. Our exposure to energy, real assets, industrials, and grid infrastructure reflects the view that the current macro regime favors tangible assets and sectors with pricing power over duration and rate-sensitive holdings. The equity market's resilience, driven in large part by AI-related investment and strong earnings from technology and healthcare, has rewarded that positioning while also providing broader market exposure through our core equity sleeves. We continue to monitor the Iran situation closely, with scenario probabilities and portfolio implications updated as the diplomatic picture evolves.
The week ahead brings April CPI on Tuesday — the first inflation report to capture a full month of post-ceasefire energy dynamics — along with retail sales, industrial production, and the next GDP-Now update. CPI will be the most consequential release of the week. We will have a full update for you shortly after.
This note is for informational purposes and is not a solicitation to buy or sell any security. Past performance is not indicative of future results. Please contact your advisor with any questions.
*Prepared by Marty Mazorra, Chief Investment Officer, Private Wealth Advisors. Research synthesis and drafting assisted by AI tools under advisor review. All market views, analysis, and recommendations are those of the advisor.
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