“The Wealth of Nations” – The Musical
This year marks the 250th anniversary of U.S. independence, but also the 250th anniversary of Adam Smith’s publication, “The Wealth of Nations” (the short title). The core tenet of the tome is that a prosperous economy is regulated by an “invisible hand,” basically individuals acting in their own self-interest in free markets. Supposedly, George Washington had a copy of the book, Thomas Jefferson was recommending it to people in private letters and James Madison was quoting from it in speeches about duties and imports.
Many have seen the successful musical “Hamilton” about the founding leaders of the United States. Not to be outdone, David Lang, a Pulitzer Prize-winning composer, has created a musical about “The Wealth of Nations”, which debuted at the New York Philharmonic last month. Lang’s oratorio features a chorus and soloists singing excerpts from the book. Not as exciting perhaps as Lin-Manuel Miranda’s rapid-fire rapping, but an interesting take on a dry subject nonetheless. One of the book’s most famous passages references a wool coat worn by a very poor Scottish worker as a way to examine trade. One movement, “the woolen coat”, names all the artisans and laborers who contributed to the garment in song. These include: the shepherd, the sorter of the wool, the wool-comber, the dyer, the spinner, the weaver, the fuller. There are also the workers on the ship that brought in the dye and the people who financed and built the ship. An ordinary coat is revealed to be a kind of miracle of skilled labor and global collaboration, the product of many thousands of workers coming together in harmony, selfish though each individual contribution may be.
When we think of modern examples of global collaboration, semiconductor manufacturing comes to mind. In order to power the many areas of our economy from cell phones to automobiles as well as artificial intelligence applications, there are thousands of suppliers from many countries that are involved in the semiconductor manufacturing process and supply chain, including Taiwan, Qatar, the Netherlands, South Korea, Japan, and the U.S., to name a few. Put a semiconductor chip into a cell phone and this requires 6 of 7 continents to supply inputs for modern communications. The invisible hand allows for division of labor and expertise worldwide, but makes supply chains susceptible to geopolitical disruptions. It remains to be seen how widespread the impact from the Middle East conflict will be to corporate earnings, though most companies appear to be managing through reasonably well.
The Fed Is Sitting On Its Invisible Hands
Before the conflict broke out, traders priced in a nearly 80% chance that the Fed would cut rates twice by the end of the year. Now, those odds have dropped to less than 2%. As the Middle East war enters its fifth week, markets are still processing the impact of the Strait of Hormuz closure and attacks on regional energy infrastructure. Gulf countries have cut production by at least 10 million barrels per day (bpd), while the Hormuz disruption removed roughly 20 million bpd of crude and refined products from global trade, according the International Energy Agency. Despite disruption headlines, benchmark crude prices are hovering around $100 per barrel, elevated but still well below peaks seen during 2008 or the post-Ukraine invasion energy spike. However, it is estimated that only about 60% of lost supply has been offset, leaving a significant gap in supply versus demand. If the supply gap persists, demand destruction will be more likely.
First Quarter Fluctuations
With the first quarter of 2026 in the books, stock market indices have been on a wild ride. The S&P 500 ended the quarter down 4.6%, but this masks deeper declines in technology stocks. The Magnificent 7 stocks are down over 11% as a group, while the equal weight S&P 500 index is down only 0.5%. Six sectors of the S&P 500 Index are in positive territory, including Energy, Utilities, Consumer Staples, Industrials, Materials and Real Estate while three sectors are up 7% or more year to date. Meanwhile, the 10-year treasury yield hovers around 4.3% currently as U.S. Treasury demand remains strong due to safe-haven buying. Considering the energy shocks we have experienced during the past several weeks, markets have been remarkably resilient.
While not completely visible yet, earnings will be a key area of focus when it comes to propping up the market in the face of elevated geopolitical uncertainty. On the plus side, equity valuations have compressed over the past month. The latest GDP forecast for the first quarter calls for about 2% growth while corporate earnings are expected to be up double digits for the year. Retail sales out this morning for February were better than expected and broad based, however gasoline prices above $4 per gallon risk a pullback by consumers if the conflict drags on. The reality is that volatility will persist and uncertainty (and oil prices) will remain elevated until the Middle East conflict settles down and its potential duration and impacts are clearer. While stock market indices had been skimming into correction territory recently, the S&P 500 posted its biggest one-day gain yesterday since last May. This is a reminder that missing the 10 best days in the market over the past 30 years would have cut returns in half. Today is April Fools Day, so we will see if yesterday’s strong gains were more than just a head fake or the beginning of a more sustained recovery.
Singer Susan Boyle (I Dreamed a Dream) turns 65 today, and actor Taran Killam of SNL turns 44.
Christopher Crooks, CFA®, CFP® 610-260-2219