The market is ignoring the attacks around Iran. Today has traded from the mid $76/bbl to mid $78/bbl, down 7.9% in a week, +7.3% in a month, still +21% from a year ago. stocks are down 1.3% today, +9.5% in a month, +30.1% YTD. The market trading into new highs is saying that the impact of higher energy is already largely in the numbers, and fears that shortages in refined products, considered assured by the end of the summer just short months ago, are no longer bringing the caution we saw early on.
While the inflation pressure of higher energy prices, and the pressure on food prices from higher fertilizer costs, continue to increase, the new rationalization is that a rate increase by the Fed will do little to bring down prices here, so what’s the point? Only triggering a recession to drive down demand meaningfully might make a difference, and no one expects the new Fed chair to start his tenure with an intentional effort to cause a recession.
Today, we got a drop in the by one tick to 4.1%, the lowest it’s been since Jun ’25, driven primarily by a weakening participation rate. This was in conjunction with lower-than-expected , including a big drop in government payrolls. This trend has weakened the bets for a Fed hike in September. Interest rates fell on this data, but then started climbing again when crude oil started swinging back to the highs of the day.
This week is the strongest since April, with the up more in a week +2.9% than it was in the trailing month +2.3%. is up 5.7% in a week, up less than 1% in a month. YTD, 5 sectors are up double digits: Energy +30.1%, Tech +28.7%, +19.1%, +15.0%, and a bit of a surprise, +11.1%. is up 5.1% YTD, less than half the S&P’s 12.7%, leaving the winning at 14.1% YTD.
The trend remains positive. The catalyst of the end of the Middle East conflict is still there, though it is increasingly looking like it is already being reflected in a major way.
If we get into the fall and the Strait of Hormuz is still closed, and further attacks on Middle East energy assets continue, we are likely to see increasing volatility. But the AI spend appears very unwavering and supports strong earnings across hundreds of major companies, making a material correction more or less immune to energy prices and inflation.
On the flip side, when energy prices eventually fall and interest rates follow, that will support both the consumer and housing and autos, as well as support to P/E levels. The FOMO pressure of all the money still on the sidelines looks to continue.