NFJ Investment Group

The Mirage of Multiple Compression Equity markets are currently trapped in a tug-of-war between strong corporate earnings and shrinking multiples. John Mowrey points out that while tech sector multiples have hit lows not seen since 2022, the underlying fundamentals remain surprisingly robust. This compression isn't a sign of corporate failure; it is a direct reaction to exogenous shocks. Investors are recalibrating asset prices based on a shifting Federal Reserve policy path that is increasingly sensitive to energy volatility. Oil Volatility and the Geopolitical Trap The ceasefire news involving Iran and the Strait of Hormuz triggered a relief rally, but Robert Armstrong warns against premature optimism. Despite crude falling to $96, it remains significantly higher than pre-war levels of $65. The complexity of a multilateral conflict means Donald Trump cannot simply "flip a switch" to stabilize the market. With 20% of global supply at risk, any disruption in the Strait creates a ripple effect that hits the Consumer Price Index and freezes growth. Supply Shocks Versus Demand Rallies We must distinguish between the demand-driven inflation of 2008 and today’s supply-side constraints. John Mowrey argues that current energy spikes act as a regressive tax on global consumers, effectively slowing the economy without the "overheating" typically associated with high inflation. The central tension for Jerome Powell is whether to look through these supply shocks or tighten further to maintain credibility. If the Fed misreads a supply-driven tax as a demand-driven fire, they risk crushing a resilient consumer base that has already proven its ability to withstand post-COVID price hikes.