Hello, and thanks for joining us. Today is Monday, March thirtieth, and I'm Keith Lerner, chief investment officer at Truist Wealth. Today, I'm joined by Mike Squadelis, head of US economics Chip Kui, managing director of fixed income, and Eilim Senus, senior investment strategy analyst covering global markets. And as all as we all know, the Iran conflict has now moved into its fifth week. We've seen some weakness in the overall markets. And certainly, as I travel, the number one word I'm hearing today is uncertainty. So today, we'll discuss where things stand, the potential paths forward, and what this all means for the economy, interest rates, and markets. And of course, it's a very fluid situation, so let's get right into it. And I would say just to set the stage upfront of where we are, from a market perspective, the S and P five hundred is down about nine percent from its recent high. We certainly see some movement in interest rates. The ten year treasury yield is around four point four percent as we record this. That's up from roughly four percent before the conflict escalated. Turning to oil prices, which is front and center. Oil prices are now above one hundred dollars a barrel versus in the sixties, earlier this year. And, notably, markets have shifted from expecting multiple Fed rate cuts to questioning whether higher energy prices and inflation could instead lead to rate hikes. So we'll we'll provide our view on that. I will say also, I mentioned this at the forefront, uncertainty is elevated, but uncertainty is always a part of of investing. This is exactly when we really lean in on our weight of the evidence framework, really focused on data and not just the headlines, to really assess what are the risks and what are the opportunities. And that will really guide today's discussion. And then before I bring in our panelists, I just want to highlight the three main areas of focus today and really provide the key takeaways upfront. So first, and Mike's going dig into this on the US economy, The Iran conflict has led to a modest trim in our twenty twenty six GDP outlook, but our base case remains that the economy continues to grow, you know, around two percent. Second, on interest rates. From an investment perspective, the higher rates that we are seeing are starting to create an opportunity, something Chip will walk us through. And then third, on the equity markets, which I'll dig more into as well. Since early March, we've viewed the market as being in a corrective phase, a corrective phase that likely has somewhat further to go, but still importantly, within the context of an ongoing bull market, a bull market that our work still suggests deserves the benefit of the doubt. And I'll just say upfront, as I'm getting more questions on this, for investors with excess cash or their underweight equities, we would take a measured approach to adding exposure today, meaning start averaging in now if you haven't already. And if markets were to see, say, somewhat of a deeper pullback, say, another five percent, we think that would create a more compelling risk reward to potentially become more aggressive as well. So with that as the backdrop, let's turn first to Elam Senhuz. Again, he's our senior global markets analyst and also a Georgetown professor. So Elam, this backdrop is really right up your alley as far as knowledge on the situation. So I think just to start off with for our audience, what is your read about where we are with the war today? Yes. Good good morning. You know, thank you thank you for having me, Keith. You know, over the last thirty days, you know, we have been asking the same question every morning. Is the Strait of Hormuz open? Are the ships freely traveling in and out of the Strait? And the second question is, is the energy infrastructure in the Gulf, including the ones in Iran, are they operational? If the conditions normalize, you know, can the area safely restore to prior production levels are the, you know, two most important questions we ask every morning. And we need to say yes to both of these questions to say that the war is over. The good news is the conventional war in the air or on on the water is over. As expected, the US and the Israeli attacks completely decimated Iran's air and naval capabilities. But the bad news is that we are now in the unconventional phase of the war where Iran took the Strait of Hormuz as hostage. The vessels passing through the Strait are those authorized by the regime, and they typically pay a substantial safe passage fee of two million dollars. And most of these ships are bound for countries Iran considers friendly like China or Russia, India, Pakistan, and few others. And unfortunately, the traffic through the strait has dropped by over ninety percent, posing a significant threat to the global economic output. And as we all know, the strait carries twenty percent of the world's oil, and over twenty percent of LNG passes through these waters as well. And a couple of other products that go through the Strait are also really important for the world economy to function properly. And one of them is the nitrogen based fertilizers, which in a sense is just natural gas in another form. And Qatar, you know, produces more than one third of the world's helium supply, and this is another byproduct of their massive LNG production. And helium is used in many industries, and most important one is semiconductors and also in medical equipment like MRIs. And there is a naphtha shortage in Asia and forty five percent of the world's naphtha is going through the strait and naphtha is the key ingredient for many petrochemical products, nearly all plastic related products. And just to give you a specific example, Asian countries produce most of the medical gloves on the planet. And if the Asian countries cannot get their NAFTA out of Middle East, there will be medical glove shortages. Like it happened during the COVID years. So the domino effect is significant here. Yeah. I think a lot of folks, they think about oil prices and gas prices being up. What you just laid out, there's a bit of a domino effect here as well. So I guess, really, important question the market is grappling with is what are the potential outcomes at this point, and what does an off ramp look like? Sure. In short, this trade needs to stay open for world economy to function properly, and diplomacy is the only way to open it up. Iranian coastline to the Gulf is one thousand one hundred miles. Protecting this strait militarily is not enough. The entire coastline needs to be covered and that is almost impossible. The terrain is rugged and with lots of mountains and caves on the Iranian side. The best possible off ramp we see for the US is to do a surgical strike to one or two nuclear sites and remove enriched uranium and get commitments from the Iranians that they will not restart the nuclear facilities, and in return, the Iranians will get all or maybe some sanctions will be removed against them. The good thing is that the diplomacy has started, of course, much slower than what we would like to see, but at least there are a list of items from the US, the fifteen point list, and the Iranians have a five point list to start the negotiations. And as you know, currently both sides are far away. It's understandable that happens at almost every negotiation. So the question for you, Alema, is, so what is the incentive on both sides to get a deal done? There's a lot of discussion about who holds the cards in this right now. So just tell us a little bit more about why do you think the deal ultimately gets done. Sure. Let me give you maybe a story line related to the timeline as well. We probably have two to three weeks here where after that, the supply shocks will be visible everywhere. You know, during COVID years, you know, we learned that the four decades of globalization have made many countries connected in ways that we had hard time, you know, comprehending. Energy shortages in Asia will have ripple effects in countries even with energy surpluses like the US. So we can't hide from these supply related shortages. And let me give you the incentives for different parties involved with it. For the US, since nineteen seventy nine, the US has been dealing with this regime in different forms. And of course, the biggest risk is that the Iranians getting nuclear bombs. And establishing a nuclear free Iran is a massive win for the US and also for the Israelis. Remember, there is another war the US attention is needed. That is the Ukraine and Russia war. Once this episode is over, the US can concentrate on that one as well, and currently no one is talking about that. Bringing a nuclear free Iran back to the global order, even with the current regime intact, could be a monumental achievement. And for the Iranians, their regime is intact, and now the whole world agrees that they have an upper hand when it comes to the Strait of Hormuz. And lifting sanctions against Iran is massive. This country has been living under the sanction regime for almost, you know, four decades. And the country with ninety million population with enormous resources have the potential to become a G20 member in the global stage if they can do it. So they can open a brand new chapter with the world with endless possibilities for them. And for the rest of the world, globalization is a well oiled machine, and even a small hiccup has an immense repercussion. So rogue countries like Venezuela, like Iran, and Russia is a threat to this well oiled machine. And if you can open them one by one, like it happened starting with Venezuela, it's a huge success, not only for the US, but for the whole world as well. Great, Salem. I appreciate the insight. So just I know we covered a lot of ground. So the key takeaways that I took from this was, like, one, there could be more military action. It's likely they remain messy. But ultimately, you see potentially a path forward with a deal through diplomacy, but also time is of the essence. So thanks so much for joining us today, Elam. I'm gonna now bring in Mike, US head of economics into the fold. Hey, Mike. How are you today? Good morning. Good morning. So you just heard Alom, and given what's happening, you know, what is your current economic outlook, and, how has that evolved, this year? Yeah. So our economic forecast is lower than what we were expecting coming into the year. We're expecting a lot closer to two and a half percent, but we see growth now coming in closer to two percent. That's roughly flattish compared to twenty twenty five. But a lot of questions that I've gotten and been fielding from clients, really is, like, why isn't the why aren't the pull expectations of a pullback a lot bigger? And the three key factors for that is there's a number of catalysts that that are happening that are not related to Iran. The one is the tax changes, the one big beautiful bill act, average tax refunds for consumers. It's already running about eleven percent above where it was a year ago, and we think that's gonna climb as we move forward. So that's a big boost to consumers. Additionally, the tariffs have been roughly contained. The average tariff actually went down after the supreme court ruling. And then thirdly, there's this continued gale of AI and technology spending that's happening. It wasn't just a twenty twenty five story. It's certainly not just a twenty twenty six story, and much of that doesn't go away. However, the Iran situation definitely ratchets up uncertainty as you mentioned earlier, Keith. That's for consumers. That's for businesses, and certainly for decision makers like the Federal Reserve. But I think it's important for our clients to understand that the Iran situation, it's a headwind. It's not game over. Yeah. Mike, you know, one thing we always talk about is, you know, when new situations pop up, that a lot of times the media and also just in general conversation revolves as if this is the only thing that matters. And, you know, what I hear you saying is this matters, but don't forget about some of the foundational parts of the economy that are still in place such as AI and that and that one big beautiful bill that should still provide some support. So but, you know, something that's coming up a lot again right now, Mike, is is the word inflation. And, obviously, went through COVID. Alam talked about, that again. So what is the inflation outlook now, especially given where oil prices are today? Yeah. So in in the near term, it increases inflation. It bleeds through to a lot of places. But the most obvious and most direct is at the pump through gasoline and diesel prices. But there's a number of other places, as Ehlan mentioned. So things like fertilizers and chemicals and pretty much anything made with plastic. So, again, even though we have a lot of production here in the US, this hotter inflation from other places in the world where we source various pieces of our overall production, that's causing interest rates to increase, and certainly inflation expectations to increase, and that hamstrings the Fed in the near term, which really that just means borrowing costs are gonna remain higher than they otherwise would be. So, again, that higher or hotter inflation outlook really hampers what the Fed can do in the near term. But, again, we'll we'll talk a little more about that in a second, I guess. Yeah. Well, Mike, I guess, you know, as I'm as someone who's listening to you, listening to Alom, and again, going back to oil prices and the word uncertainty, I guess maybe the knee jerk reaction is why don't you see something as far as even more of a more dramatic slowdown for the US economy at this point? Because know, we're kinda shaving a few tenths of a percent off the GDP forecast. So a client out there listening to the news, like, what would you what would you what would you say to that that point? Yeah. So to Alan's point, our base case is that this is gonna get resolved in the in the next few weeks. We're not measuring this in terms of months and months more of of activity there. While the US is largely insulated from this energy supply shock, We get more than ninety percent of our crude oil supply from North America. However, prices are set globally. So we're feeling that fifty percent increase in the price of crude oil. National average for gasoline prices in the US is now over four dollars. But, you know, again, we're somewhat isolated from some of these. So natural gas prices as a for instance. We've seen a big spike in Europe that flows through to electricity prices and what have you for places in Europe. But here in the US, natural pry gas prices are actually down to essentially flat from a month ago when this this situation started. Additionally, the Americans spend a lot less on energy than we did even ten years ago. It's less than four percent of the total consumer spending. But, again, the determining factor for our outlook on the US and how much drag there might be is how long this conflict and the level of crude oil prices, again, and and how long it stays there. By duration, look. If it stays near a hundred dollars, and today it's a little above a hundred dollars per barrel for several more months, obviously, that's gonna dig more into US spending. Conversely, if we see overall growth, not just spending related to energy, if we see that nosedive, that's an issue. We're not seeing that. Even so, longer it drags on, consumers, you know, are gonna feel the indirect effects. I mentioned diesel prices at the gas pump. It's five dollars a gallon for diesel. Those things get embedded in a lot of everyday cost for people. So higher cost, more expensive inputs, again, fertilizers, chemicals, those sort of thing, and anything that's getting shipped to you. So, again, that that's a that's a p key piece there, and it's certainly four dollars a a gallon is a key psychological threshold for consumers. So if consumers lean back a little bit because of that, you know, that that would be a threat. But, again, as I mentioned earlier, larger tax refunds, that's an important piece, up about eleven percent year over year. That offers offers a modest cushion for most consumers. Right now, it's running about, call it, four hundred dollars of on average for people. So that offsets some of that. But the difficulty is that most consumers aren't likely to contact connect that I'm getting a bigger tax refund with I'm feeling a lot higher fuel prices at the pump. Yeah. Well well, thanks, Mike. And one one stat that I've been sharing recently, you know, the economy, you you think about the last decade, has been very resilient. In fact, since the global financial crisis, we've had over two hundred months since then. Right? Since two thousand nine, we've had about two hundred months. And the stat that I like to share is that during that period of time, despite all these different challenges, we've only been in recession for two months or one percent of time. And those two months were during COVID. So it's not to say there aren't risk. There are always risk. And you just mentioned that, but also not to forget about the economy's ability to be resilient also to adapt. But certainly, is a fluid situation, Mike. And as this evolves, we'll we'll check back in with you as well. But my main takeaways from you is slightly slower growth, duration of the wart matters, and at this point, we're looking for growth closer to two percent. So thanks so much, Mike. And I think that's a really good lead in to Chip to discuss the fixed income markets as well. Hello, Chip. How are you today? Hi, Keith. Thanks for having me. Yeah. So at the beginning, mentioned interest rates have really moved up sharply since these geopolitical tensions have risen. What you know, what's your perspective at this point as we're thinking about the fixed income rate in fixed income markets and where we're seeing interest rates? Sure. Well, for starters, interest rates are close to a year high. And from an investment standpoint, we're seeing a more favorable starting point. And so let me provide a little bit more detail. Right now, US treasury yields, which drive virtually all US fixed income yields and borrowing costs too for that matter, are near their highest point since last summer. And that's pretty much true regardless of maturity. Yields have risen roughly forty to fifty basis points in March. And so for context, the ten year US treasury yield is currently trading at at roughly four point four percent. That's up from about three ninety four at the end of February. So a sharp move. Short dated yields, so bonds that mature within a couple of years, those are very sensitive to Fed policy rate expectations. About a month ago, the market was expecting the Fed to cut rates multiple times this year. Now those rate cut projections have really vanished from the market based on worries that the spike in energy prices will translate into rising inflation. And the longer the conflict continues, the more the market's probably going to position for an increasingly hawkish Fed response to the threat of inflation. So this is all really closely related. The Fed side of the equation is pushing short dated rates higher, but it is it's it's primarily the inflation side of the equation that's pushed intermediate and longer term yields higher. Because typically when geopolitical tensions rise, you see a flight to quality that actually brings yields down, but the perceived inflationary implications in Iran are what's driving the market right now. Now if we do see some deescalation in Iran in the days and weeks ahead, I would expect to see yields across the curve to decline more consistently, but we're just not in that environment yet. Yeah. And, Tim, you touched on this already, and and I mentioned this at the onset. The the market has gone from pricing in a couple of rate cuts from by the Fed to now potentially even saying there might be a rate increase. What do you think the most likely path is for the Fed, from a truest perspective? You're exactly right. Traders are actually now signaling a slight chance that the Fed will actually raise the Fed funds rate by the end of the year in response to this inflationary threat. That was unfathomable to market participants even a month ago. From our perspective, we do not think that the Fed is going to have to hike rates this year. In fact, we still we we still think that we'll see the Fed lower rates again later this year. But the longer the conflict in Iran can carries on, the longer the delay before the Fed resumes lowering rates. So for now, the the Fed is going to stand pat to see how long the conflict lasts and how disruptive the war will be to energy supply chains and then therefore energy prices. Once officials get more comfortable, we still think the Fed is trying to get the Fed funds rate closer to three percent. Right? About, call it, fifty ish basis points lower than we are today. But this is also really important to remember, that even though the Fed may have a little more easing to deliver, the vast majority of rate cuts are already behind us. So what the Fed has left to do is probably much smaller compared to the easing that the Fed has already delivered over the past year and a half. Yeah. That's helpful. And, Chip, something you and I and our team have discussed, if if oil prices do stay elevated for a prolonged period of time, the the market is shifting will likely move from concerns about inflation to concerns about economic growth. And that also suggests, as you said, the Fed is still likely to cut rates by the end of the year, you know, based on the the situation even if it even if it's somewhat prolonged. Right. All right. So going back, and you started off with this, which I think is really helpful, especially for the investors side. We did talk about yields now. I think you just said close to a year high. What does this mean for investors? And then since we probably also have a lot of, you know, business owners, what does it mean for from a borrowing perspective as well? Sure. Several things. We we view the recent rise in in high quality fixed income yields as actionable opportunity. So in fact, we just upgraded our outlook for duration for fixed income portfolios. So what does that mean? It simply means that the events over the past month have created a more attractive entry point for bond investors, especially for portfolios that are still heavily concentrated in ultra short maturity fixed income securities, and we do see a lot of portfolios like that. The the three to ten year portion of the yield curve offers a compelling balance of income and a and more moderate interest rate sensitivity. And yields are as high as they've been there in about eight months, and that translate into the the US aggregate bond index. That's the largest index of US investment grade bonds. It's yielding over four point seven percent right now. It hasn't offered that kind of yield since July of last year. And these yields create a solid foundation for longer term returns in core fixed income and some offsetting protection if we do see periods where yields are rising. But we actually don't think that yields are off to the races higher from here like like some fear. We think it is somewhat limited how much higher yields can go on a sustainable basis. But in the meantime, that does mean that with the Fed staying patient, borrowing rates on credit cards, auto loans, home equity lines of credit, small business loans, they are going to stay elevated for the time being. And additionally, the rise in the ten year has pushed thirty year fixed mortgage rates up closer to about six and a half percent on average. That's up about a half a percent, from about a month ago. They had been declining steadily over the past year, but we're probably gonna need to see tensions with Iran subside before that downward trend in mortgage rates resumes. Great. I appreciate it, Chip. So, you know, the the main takeaway that I hear, first, from the investor side is really like, hey. Yields have moved up. This is creating an opportunity, especially for those folks that may be in short term bonds. It may be an opportunity to to buy some of these longer term bonds and lock in these higher rates, which we ultimately think will likely start to come down eventually. At the same token, we still think the Fed's likely to cut rates. And, as you as you mentioned, it's a good story for the investment side. It's a more challenging story for, you know, for the for a business owner or someone who's borrowing at this point. So appreciate you breaking that down for us, Chip. Thanks so much. I'll close this out going through the equity section and then some overall final thoughts. So let's talk more about equities. Upfront, we still believe that this bull market deserves the benefit of the doubt. As we had written about and been discussing earlier in the month, we see this recent action as a corrective phase. A corrective phase that likely has a bit further to go, but importantly, we're no longer at the very beginning of it. As I mentioned in the beginning, we are down about five I'm sorry, about nine percent. This is as of March thirtieth. And that's why for investors with excess cash or those who are underweight equities, we're saying this is a time to average in as well. Even though there's a lot of uncertainty, by the time everything clears up, the market would have moved. If we were to see a further move back down, let's call it around five percent or so, We think that creates a more compelling opportunity to become potentially more aggressive, if we were to see that. But I also think it's important when we go through these periods of uncertainty to put it in context. You know, one of the key points as we came into this year on our outlook, we really highlighted that we were coming into our midterm election years, and the midterm election years tend to be more volatile. In fact, double digit pullbacks are very common during midterm election years, and partly because it's driven by elevated policy uncertainty. So again, from that perspective, a nine percent decline while uncomfortable is actually quite normal. Also, I think it's also important to anchor this discussion at least in a long term foundation. You know, we just, this month, marked the seventeenth anniversary of the market bottom following the global financial crisis. I mean, and I can't believe it's been that long ago as well. Since that low, this is really important, the market has experienced more than thirty pullbacks of at least five percent. More than thirty. Every one of them came by unsettling headlines or what I say just is bad news. But what's also really important is over that same period, despite those thirty pullbacks, the S and P five hundred has risen more than twelve hundred percent. Right? Twelve hundred percent. So even though we think the setback likely has a bit further to run, there is a silver lining. We've already seen a pretty healthy reset in valuations and investor expectations. Another way of saying this is that the bar for positive surprises has also been low. Just maybe a couple examples. You know, the S and P five hundred's valuation has contracted by about fifteen percent from its high. So that's bringing valuations, while not cheap, at the lowest level since the tariff shock from last April and May. At the same time, earnings continue to trend higher. And notably, even like the technology sector valuations are now below what we saw at the trough from last year. I mentioned this when I was speaking to Mike earlier around the economy, but I think it's also worth remembering just how battle tested corporate America has been, over this last decade. Let's think about what we've been through. We've went from the the COVID shock to the highest inflation since the nineteen seventies to the fastest Fed tightening cycle since the nineteen eighties. And then as I just mentioned, last year's tariff shock, each episode brought short term pain, but corporate profits and the market ultimately rebounded to new highs. So I say this is while it's attempting to invest only for the worst case scenario, doing so means you'd be under invested most of the time. History also shows that market snapbacks following corrections can be powerful and difficult to time. And just to start on that front, the average subsequent rally we've seen from these pullbacks that we've seen since two thousand and nine have been close to twenty percent. Okay. So let me wrap up. And we really covered a lot of ground. And I want to thank Mike and Alim and Chip. But to wrap up, we are in a midterm election year. And deeper corrections are the norm rather than the exception. Based on what we know today, you heard from about the global risk, but also that there's a potential off ramp as some of these risks evolve. On the US economy side, Mike highlighted a modest slowdown, but importantly, where growth continues at moderate pace. In fixed income, Chip pointed out about the opportunities that are now developing the longer term bonds with rates near a one year high. And then turning back to equities, again, our work suggests this correction likely has a bit further to go. But But again, we're not at the beginning, and we're actually seeing a pretty healthy reset in valuations and investor sentiment. And at these levels, a measured averaging approach makes sense in our work with the potential of becoming more aggressive on deeper pullback. And again, it's worth remembering how quickly fear can turn to greed. And in other words, of of thinking about how quickly markets can go from selling off to to to rebound. And, of course, this is a very fluid environment. Diversification is critical. We just published a market perspective on some of the stats that I shared today. We'll be out over the next week or so with our latest market navigator. And as always, we'll continue to follow the weight of the evidence. We'll keep an open mind and keep you informed as our views evolve. And we thank you for listening today, and we'll speak with you real soon. Thank you.