The S&P and hit new all-time highs.
After one of the greatest rallies in history following a 9% correction, the market is taking a pause to consolidate this morning. While clearly there was a short covering component involved in such a rapid recovery, what seems to be the primary driver is the strength of the economy, best reflected in strong earnings.
The impact of the fallout from the closing of the Strait of Hormuz, along with the major damage to production and refining assets in the region, is far from over. Neither is the conflict itself. It seems likely that oil and petrochemical prices will remain elevated for an extended period of time, even after the free flow of goods through Hormuz is reestablished. There may also be dislocations of supply: There are reports that Europe only has a 6-week supply of jet fuel. This will be inflationary in the short term.
Earnings continue to not disappoint. Taiwan Semi (TSM) had beats top and bottom, though didn’t surprise to the upside as much as hoped. The shares are down 2.3% today (+20.6% YTD, +141.6% LTM). PepsiCo (PEP) had a beat on the bottom and a strong beat on the top. The shares are up 2.2% today (+10.3% YTD, +13.1% LTM). Charles Schwab (SCHW) had a beat on the bottom and a meet on the top. The lack of a beat on the top left the shares down 4.9% today (-4.6% YTD, +25.9% LTM). Tonight we get Netflix (NFLX).
In economic events, came in lower than expected and have remained near the 200K level all year, easing concerns about labor. Continuing claims were slightly higher but have been trending down. The jumped to the highest level since Jan 2025 and has been trending up strongly all year, reflecting economic strength. New orders jumped as well, also the strongest since Jan 2025. Interest rates remain stable today, with both the US 10-year and 2-year up 1 bps.
On the commodity front, is trending higher, with both WTI and Brent prices up 2%. and gasoline are also higher. Precious metals are flat today. Agricultural commodities are modestly higher and are up 6.5% YTD. Bitcoin is flat today at $74.1K.
The rally has been led by momentum names, up 10.9% in the trailing month, and growth names +8.2%. Today we’re seeing a rebound in energy +1.3% (now -3.3% in the trailing month) with tech and communication services both up 1%. The Magnificent 7 is flat, and the even-weighted S&P is leading +0.5% in a catch-up move.
The trend remains positive, and sellers are not willing to fight the tape.