Today’s theme music: Icona Pop, with Charli XCX
Sometimes it pays not to ask too many questions. That is certainly the case when it comes to the recent stock market performance. We go up when oil is lower, like today, but we also go up when it’s higher, like yesterday. Over the past few weeks, earnings expectations have continued to rise, providing an important underpinning for equity valuations, but the reactions to the first few reports have been lackluster. Vibes can be more powerful than reality.
At the risk of repeating myself, the following question continues to resonate in my mind. Answer honestly: if I told you at the end of February that by mid-April oil futures would be $30 higher, bond yields would be about 35 basis points higher, and expectations for two rate cuts would evaporate, would you have reasonably expected major equity indices to be flirting with all-time highs by the end of that timespan?
Indeed, oil prices and bond yields are off their worst levels, which certainly justifies a lift for stocks, but the situation in the Persian Gulf remains unresolved. It is newsworthy when tankers pass through the Strait of Hormuz, which was the case when two Chinese tankers, traveling under African flags, passed through the blockade in opposite directions today. That’s not exactly allowing free-flowing supplies of oil, gas, fertilizer, and helium; and the longer the bottlenecks persist, the longer they will take to clear.
Almost immediately after the first missiles started flying, traders operated under the assumption that the conflict would be resolved in four, maybe six weeks. It’s been six weeks now, and while the ceasefire appears to be holding, which is indeed a very good development, things are hardly back to normal. With one big exception, of course: the stock market is not only back to normal, it is bordering on euphoric. We have flipped from short-term oversold to short-term overbought in very rapid succession.
Mind you, this has occurred in a period when investors who need to pay taxes — presumably resulting from trading profits –might have needed to raise cash to send to the IRS. Instead, it is entirely possible that they raised it nervously during the downturn, and some of that selling has been replaced by buyers who either received tax refunds or procrastinators who delayed their 2025 IRA contributions.
As for the early earnings scorecard, seven S&P 500 (SPX) components reported yesterday and today. The results so far have been decent, though unspectacular. Goldman Sachs (GS) beat JPMorgan (JPM) out of the gate yesterday. They fell sharply on the open, recovered to close -1.87% yesterday, and have fully recovered those losses today. As I type this just after noon ET, JPM is -1%, Wells Fargo (WFC) is -5%, and Albertsons (ACI) is -3.2%, while Citigroup (C) is +3%, Blackrock (BLK) is +4.4%, and Johnson & Johnson (JNJ) is +1.2%. As earnings season rolls on, we’ll learn whether expectations have been raised appropriately, as it appears from this very limited set of results, or whether the continued enthusiasm has raised the bar too high for most companies to clear.
In any event, earnings can be another situation for investors to remain hopeful about now and worry about later. Bottom line, momentum-driven traders are too loath to miss out on a rally to worry about what is driving it.