Two hours before his latest deadline, President Donald Trump canceled Obliteration Day. He agreed tonight to a two-week ceasefire with Iran. The deal was brokered by Pakistan. Trump confirmed the US had received a 10-point proposal from Iran as a basis for negotiating a permanent peace agreement. Israel separately agreed to suspend its bombing during negotiations.
The market reaction was swift. Crude oil prices tumbled, while S&P 500 and Nasdaq 100 futures climbed. Bond yields edged lower. The dollar weakened, and gold moved higher.
The ceasefire confirms our call last week on Tuesday night that the S&P 500 had bottomed on Monday. Our favorite stock market sentiment indicator remained bearish this week, which is bullish from a contrarian perspective (chart). However, a two-week pause is not a resolution. Financial markets will remain sensitive to any breakdown in talks.
Let's consider the consequences on the home front. As we signaled last week, we are lowering the risk of a recession back down to 20% from 35%. Recently released data suggest the US economy was on a resilient growth path heading into the latest oil price shock and even through March when the war was raging. The labor market seems to be improving by some measures.
Inflation, however, remained stuck above the Fed's inflation target before the war. The supply shocks from the war will undoubtedly boost inflation over the next few months. We remain in the none-and-done camp for Fed rate moves over the rest of this year. We are still targeting 7700 for the S&P 500 by the end of this year.
Let's review the latest US economic data:
(1) GDP. The Atlanta Fed's GDPNow model has tracked Q1-2026 real GDP growth down to 1.3% as of April 7, from 3.1% in late February (chart). The sequential downgrades were driven by incoming Q1 data releases: weaker-than-expected personal consumption expenditures, a pullback in private domestic investment growth, disappointing construction spending, and slowing retail sales. Each release nudged the model lower.
We blame the weather for weighing on economic growth during December, January, and February when the winter weather was worse than usual (chart). There should be a good rebound in Q2's real GDP growth rate.
(2) Employment. The ADP NER Pulse—a weekly tracker of private employment based on a four-week moving average of payroll data from more than 26 million workers—shows a clear recovery in hiring momentum through March. The four-week average bottomed at 6,500 jobs per week in late January, at the height of the winter disruptions, before climbing to 12,750 by February 7, 15,500 by February 21, and 26,000 per week for the four weeks ending March 21—the third consecutive week of acceleration.
(3) Durable goods. February durable goods orders fell 1.4% at the headline level, but this is almost entirely a Boeing story. Non-defense aircraft orders plunged 28.6% as the company reported fewer new plane orders than in January. Aircraft orders are very important, but are randomly volatile month to month. Nondefense capital goods orders and shipments, excluding aircraft, remain on solid uptrends (chart).
(4) Inflation expectations. For the Fed to look through an energy price shock and treat the resulting inflation as transitory, long-run inflation expectations must remain well anchored. The NY Fed's March Survey of Consumer Expectations, released today, should give Fed officials some comfort as long-term inflation expectations remained low during March despite the sharp increase in gasoline prices (chart).
(5) Consumers. The Redbook Retail Sales index rose 7.6% y/y during the week of April 3 (chart). The remarkable strength of consumer spending is impressive and consistent with our upbeat economic forecast.
