🔎 At a Glance

• Short Covering Rally Or Is The Bull Market Back
• Market Brief & Technical Review
• From Lance's Desk: BLS Jobs Report Is Broken. Is There A Better Measure? - RIA
• Market stats, screens, and risk indicators

🏛️ Market Brief - Stocks Surge On Opening Of Strait

The market didn't just recover this week. It made new history.

Monday opened with the S&P 500 erasing all losses since the Iran war began. The market rose 1% to its highest close since late February. Driving that rally were reports that Iran had reached out to the Trump administration despite a U.S. naval blockade of the Strait of Hormuz. The buying accelerated from there. By Wednesday, both the S&P 500 and the Nasdaq Composite closed at fresh all-time highs. With investors pricing in an increasingly credible path to a permanent peace deal, the bulls regained control.

The week's dominant technical story was institutional mechanics, not just sentiment. Commodity trading advisors, systematic trend-followers that had aggressively shorted into the March 29 lows, reversed violently. Those managers purchased an estimated $86 billion in equities last week alone. According to positioning data, CTAs have an additional $70 billion of programmatic buying to deploy over the next five sessions. That is not discretionary optimism. It is forced covering and momentum-chasing at scale. It also provides a meaningful mechanical tailwind into next week, even if geopolitics stalls.

Earnings added fundamental credibility to the move. JPMorgan Chase beat on every line, $5.94 EPS vs. the $5.45 estimate, on revenue of $50.54 billion. However, CEO Jamie Dimon tempered the celebration by cutting net interest income guidance and warning of an "increasingly complex set of risks." Citigroup and BlackRock also topped estimates, but Goldman Sachs disappointed on FICC revenue despite record equities trading. That sent Goldman's stock down nearly 2%, while Wells Fargo fell more than 5% on a weak print. Outside of banking, Netflix beat on revenue and earnings. That wasn't good enough, as guidance fell short of expectations. So far, 80% of S&P 500 reporters have topped EPS estimates by an average of 15.7%. That is a strong beat rate, and consistent with FactSet's call for a sixth consecutive quarter of double-digit earnings growth.

Friday's session provided the week's most consequential development. Axios reported that the U.S. and Iran are negotiating a three-page memorandum of understanding. That framework would release $20 billion in frozen Iranian funds. In exchange, Tehran surrenders its enriched uranium stockpile and agrees to a moratorium on nuclear enrichment. Hours later, Iran's foreign minister posted on X that the Strait of Hormuz was open. That news sent WTI crude plunging by more than 11%.

Most crucially, the inflation math is changing in real time. A durable Hormuz reopening removes the primary driver of stagflation risk that has pressured markets since late February. If the MOU holds and tanker traffic normalizes, the March CPI will be the last truly ugly energy-driven print. If oil prices decline to more productive ranges, the Fed's path back to rate cuts reopens. With earnings tracking ahead of estimates, CTAs still buying, and geopolitical risk fading, the bull case is more constructive than it has been in months. The key risk remains deal fragility; a single violation or rhetorical escalation could unwind fast what took weeks to build.

In other words, it is not the time to remove risk management entirely.

📈Technical Backdrop - Pullback Likely

The S&P 500 closed Friday at a new all-time high of 7,125. That is 13.1% rally from the March low in under three weeks. This is one of the sharpest V-shaped recoveries in the post-GFC era. The Nasdaq posted its 13th consecutive gain (its longest winning streak since 2009). Inside the market, internals were strong. The VIX collapsed from 31 to 17. Oil pulled back below $90 before closing at $94, with ships beginning to transit the Strait of Hormuz. This is exactly the durable-bottom signal we identified weeks ago. A rapid recovery above the 200-day moving average, improving breadth, and oil declining with the VIX below 20.

However, is this just a short-covering rally or the resumption of the bullish trend? The answer is that this is most likely the resumption of the bullish trend.

Two weeks ago, just 27.6% of S&P 500 constituents traded above their 50-DMA (12th percentile). That number has surged to roughly 71%, well above the 50% confirmation threshold. That was the dividing line between a reflexive bounce and a genuine trend reversal. The Russell 2000’s move to all-time highs is the single most bullish breadth signal. Small caps confirm this is not merely a Mag 7 short-squeeze. Lastly, JPMorgan’s flow data shows retail participation rising from the 10th to the 55th percentile. When breadth and flows confirm the move, the rally has a structural foundation that pure short-covering does not.

None of this means you should chase here. After a 13% move in three weeks, the market is stretched on every short-term measure. The RSI is pushing overbought above 70. Furthermore, the price is extended 7% above the 200-DMA, and the Nasdaq’s 13-day streak has historically preceded 2–5% pullbacks within two weeks. Retail’s return is a yellow flag of sentiment as the “easy money” phase is behind us. Any pullback to the 7,000 level will become the first support under the classic “old resistance becomes new support” principle. Below that, the 6,870–6,950 zone (February’s consolidation range) should attract strong buying. The 200-DMA (~6,683) remains the line in the sand. A healthy 2–3% pullback to the 7,000–6,950 zone is the spot to add exposure. Not up here at fresh highs.

This rally is the real thing, but treat it with caution. Reversals can be swift, particularly if the narrative supporting the rally fails. For now, stay long, stay patient, and let the market come to you.

Trade accordingly.

🔑 Key Catalysts Next Week

The calendar pivots from bank earnings to the consumer and Big Tech, with March Retail Sales, Tesla, and the final pre-FOMC sentiment read all compressed into five sessions. The April 27–28 FOMC meeting looms, with the Fed in its quiet period. That means every data point this week will be interpreted through the lens of what it means for rate policy under new Chair Kevin Warsh (assuming confirmation by then) or lame-duck Powell.

Tuesday's March Retail Sales is the week's economic anchor and the first consumer spending report to fully capture the oil price spike at the pump and the tariff pass-through into goods prices. February's report was already soft. If the control group, which feeds directly into the GDP nowcast, contracts, the slowdown narrative hardens further heading into the FOMC. Pending Home Sales will also tell us whether buyers are pulling back as mortgage rates reverse higher. UnitedHealth reports that morning as well, and with the healthcare cost trend approaching 11% and Medicare Advantage pressure weighing on the managed care sector, a read on both healthcare inflation and corporate margins will be important.

Wednesday is the marquee earnings day. Tesla after the close is the event: Q1 deliveries already missed expectations, margins are under pressure, and the street is trying to price a company that's spending aggressively on AI and robotaxi infrastructure while the core auto business decelerates. Musk's macro commentary will move futures. IBM (IBM) reports the same evening that the AI enterprise revenue trajectory is critical following February's 13% single-day plunge amid fears of disruption from Anthropic. ServiceNow (NOW) is also the SaaS bellwether, with its "Now Assist" agentic AI product now past $600 million in ACV. Philip Morris (PM) that morning tests consumer pricing power with $500 million in guided tariff headwinds.

Friday closes with a one-two punch: Durable Goods Orders for the capex demand signal, and the final UMich Consumer Sentiment reading for April. The inflation expectations embedded in UMich are the last data point the Fed will see before convening. A spike in five-year expectations above 3% would all but guarantee a hawkish hold, while a decline would crack the door for dovish language.

In a nutshell, Retail Sales will tell us if the consumer is breaking. Tesla will tell us whether the growth premium is justified, and UMich will signal the Fed's next move. All with the FOMC one week away. Position defensively into Wednesday's close.

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💰 Short Covering Rally?

▶ WEEK CLOSE:  S&P 500 7,126.06 (+1.2%)  |  Nasdaq 13-Day Win Streak (longest since 1992)  |  Russell 2000 New ATH  |  Brent Crude -9.1%  |  VIX 17.42

What began as a short-covering rally on April 7th has spent the last two weeks proving the bears wrong. Friday’s close at 7,126, the first finish above 7,100 in the index’s history, up 13.1% from the March lows, arrived alongside one of the most consequential single-session catalysts of the year. Iran declared the Strait of Hormuz “completely open.” Brent crude collapsed 9.1%. The Russell 2000 logged a new all-time high. The short-covering rally that skeptics said would exhaust itself in days has now run for three weeks and taken every major index to record territory.

The question every investor is asking right now isn’t whether to believe in the rally. The price action is undeniable, but the question is what kind of rally this actually is, and what investors who missed the initial short-covering rally should do about it.

The answer, as of Friday’s close, has shifted meaningfully. This no longer looks like a purely mechanical short-covering rally. The data is starting to point to something more durable. Here’s why that distinction matters, and what it means for your portfolio.

As we discussed in the #DailyMarketCommentary this past week, the recent price action felt like a release valve being pulled. Goldman’s prime brokerage flows guru, Lee Coppersmith, described a clear pivot toward risk-on, noting that sentiment has shifted toward FOMO among investors who dumped positions amid peak AI disruption fears and rising Middle East tensions.

That pivot makes sense from a mechanics standpoint. Short exposure across U.S. macro products, index futures, and ETFs had climbed to the 93rd percentile over the past five years, with hedge fund gross exposure near an all-time high of 307%. When the Iran ceasefire headlines crossed, that positioning became a coiled spring. Shorts covered, hedges unwound, and global equities were net bought for the first time in eight weeks, with Goldman’s Equity Fundamental Long/Short Performance Estimate rising 4.01%, the best weekly reading since February 2021.

That’s the good news, and we’ve seen this movie before. The build-up of stress in the market gets investors overly bearish, and then “hope” arrives, relieving the pressure. The “hope” causes a rush to gain positioning, short positions unwind sharply, and the headline indices surge.

The trap, however, is confusing the “market squeeze” with a new bull leg higher. Understanding which dynamic is actually driving this market right now is the most important analytical question any investor can ask.

A Review

The S&P 500 peaked at 7,002 on January 27th and spent the next eight weeks coming apart at the seams. The trigger wasn’t an earnings collapse or a credit event. It was a geopolitical shock that repriced three variables simultaneously: oil, inflation expectations, and the Federal Reserve’s flexibility.

When U.S. forces launched Operation Epic Fury in late February, Brent crude surged from roughly $72 per barrel toward a peak of $119–$120 by mid-March. The stagflation trade that the market had been dismissing suddenly had a fundamental basis. JPMorgan cut its year-end price target. Recession probability estimates at the major banks rose from 25% toward 50%. Five consecutive weekly losses followed, with the index falling 7.5% from the January peak to lows near 6,300 by late March. Short interest built to multi-year highs as institutional investors layered on hedges through ETFs. The market was coiled.

What followed was initially a textbook short-covering rally. The ceasefire on April 7th lit the fuse. Trump’s April 13th comment that Iran wants to ‘work a deal’ accelerated it. And Friday’s Strait of Hormuz announcement — combined with oil’s single biggest drop of 2026 — may have completed the transition from short-covering rally to genuine bull market resumption.

The initial move off the lows was textbook, short-covering rally mechanics. Short interest at multi-year highs, extreme bearish sentiment, and oversold technicals created the conditions. All that was needed was a catalyst, and Trump’s April 13th comment that Iran wants to "work a deal" provided exactly that. Now, we have all three pillars in place to determine, potentially, what happens next.

• Pillar One: The short-covering rally ignites.  According to AInvest analysis, total S&P 500 component short interest was at elevated levels as the index traded near its lows, creating a concentrated pool of traders who must eventually buy back shares. When the ceasefire news broke on April 7th, the buying cascade began. What followed was a short-covering rally that sent the Nasdaq to its best multi-session run on record. The velocity was characteristic of forced covering rather than fresh conviction buying, which is precisely why the bears initially dismissed it.
• Pillar Two: Geopolitical de-escalation extends the move.  A pure short-covering rally typically exhausts itself within a few sessions once the most exposed shorts are covered. What extended this one was sustained improvement in the Iran narrative. Ships began clearing the Strait of Hormuz blockade. The Islamabad negotiations shifted tone from bellicose to cautiously optimistic. Vice President Vance noted the "diplomatic off-ramp is wider than it was a month ago." That war premium embedded in equity valuations began to dissolve, giving the short-covering rally a fundamental tailwind.
• Pillar Three: Earnings season anchors the move.  Goldman Sachs posted EPS of $17.55 against expectations of $16.47. Morgan Stanley beat with $3.43 versus a forecast of $3.02. JPMorgan cleared the bar on nearly every metric. The financials sector handed the market a fundamental anchor at exactly the moment it needed one. As TheStreet contributor James ‘Rev Shark’ DePorre observed: "Investors are betting on the long-term strength of the U.S. economy, with AI as the primary driver. The Iran situation is being treated as a temporary distraction."

So, who is likely right: the bulls or the bears?

Short-Covering Rally or Something More?

Every investor right now is trying to answer that question.

If there is a single dataset that most clearly distinguishes a short-covering rally from a genuine bull-market resumption, it’s sector rotation. Short-covering rallies tend to be narrow; they lift the most-shorted names while leaving cyclical and economically sensitive sectors behind. Genuine recoveries broaden. The sector data from the wartime selloff (February 27 to March 30) compared to the recovery (April 7 to April 17) tells a very clear story.

Breadth has also improved sharply, but there is certainly more room to broaden.

However, that rotation is exactly what you want to see following a geopolitical shock. Energy, the wartime beneficiary, has given back its gains. Technology has led the recovery. Consumer discretionary has followed, with Friday’s cruise sector surge (Royal Caribbean, Norwegian, Carnival all up 9%+) signaling consumers are betting on normalcy. Industrials and financials have contributed. And the Russell 2000 has outperformed the S&P 500 by a margin that argues for something well beyond a short-covering rally. That’s five of eleven sectors posting meaningful gains with genuine fundamental drivers behind each.

Another important factor right now is earnings. As we noted earlier this week, Goldman Sachs is maintaining its year-end S&P 500 target of 7,600. That target is premised on $309 per share in 2026 earnings and 12% growth, which they describe as "a fundamental floor." In their view, this is more supportive of a bull market.

"The bull market is maturing, not ending. With 12% earnings growth acting as a safety net, the transition offers a more sustainable path."

On the other hand, we must also consider the bears’ argument. The argument that this is "just a short-covering rally" with no staying power may be true, but it gets harder to sustain when you study the historical record for geopolitical shocks of comparable magnitude. Across more than 20 major events since World War II, the pattern is consistent: markets recover faster than most investors expect, and the investors who stay disciplined through the short-covering rally phase and into the recovery tend to come out ahead.

The current episode has already outpaced the average recovery time of under 60 days, completing its round-trip to new highs in just 21 days. The speed is notable, comparable to the post-Iraq War recovery of 2003, which went on to produce a 33.7% 12-month return. The COVID comparison (148 days to recover, then +43.6% over six months) is also instructive. What initially looked like a mechanical short-covering rally in April 2020 turned out to be the opening act of one of the most powerful bull markets of the modern era. The key distinction in all these cases is what's happening beneath the surface, and in 2026, that’s increasingly constructive.

The weight of evidence has shifted. At the start of this week, our scorecard was roughly balanced — three confirmed bull signals against three legitimate bear concerns. As of Friday’s close, the bull case has added three material confirmations: Russell 2000 at a new ATH (breadth), oil’s single-session collapse (geopolitical resolution), and sector rotation into cyclicals (genuine buying, not short-covering alone). The bear case retains one critical point: RSI at 72.3 argues for near-term patience on new entries, not a reversal of the trend.

The verdict: This is no longer a short-covering rally. It was one when it started. It isn’t one anymore. The transition from a mechanical short-covering rally to a fundamental bull market resumption typically happens when:

• The shorts have been largely covered,
• Breadth expands,
• Sector rotation confirms the recovery is economic rather than positioning-driven, and
• A fundamental catalyst removes the original trigger for the selloff.

As of Friday, all four conditions have been met.

What To Do If You Missed The Rally

This is the most emotionally loaded question in the room. If you have been listening to the "Perpetual Purveyors Of Doom," you watched a short-covering rally turn into an 11% surge and a new all-time high, and now you’re wondering whether to chase it. The instinct is understandable. The discipline required to resist the "negative commentary" is what separates good investors from the rest.

Here’s what history consistently shows: most breakouts that begin as a short-covering rally, and then sustain above key moving averages, offer a secondary entry point within 4 to 6 weeks of the initial move. Markets rarely transition from correction lows to sustained new highs in a straight line. The more common path involves:

• An initial surge (the short-covering rally phase),
• A consolidation or shallow retest of former resistance, and
• Then a continuation move. That retest is your entry.

Therefore, as shown below, depending on how you are currently invested, you can take actions to navigate whatever comes next.

The macro backdrop hasn’t been cleared of all risk, as oil remains above $90 per barrel, inflation is sticky, and the Fed has no near-term rate cuts in the pipeline. The ceasefire is fragile, and the Islamabad negotiations haven’t yet produced a signature. Any deterioration on those fronts is a reason to reduce exposure, not add to it.

What we are watching most closely over the next two to three weeks isn’t the price level, it’s the breadth confirmation. We want to see the percentage of S&P 500 stocks above their 200-day moving average cross back above 60%, then 70%. We want to see volume improve on up-days and dry up on pullbacks. And we want to see earnings season deliver results that justify the multiple, not just the sentiment reset that a short-covering rally provides.

BOTTOM LINE:  The S&P 500’s return to all-time highs is technically significant, but significance and sustainability are not the same thing. Yes, a short-covering rally lit the fuse, but the sustained move above the 200-day moving average, the improving VIX, and the early earnings beats suggest something more durable may be taking shape. History is clear that markets recover from geopolitical shocks faster than almost anyone expects. The investors who come out ahead aren’t the ones who chase; they’re the ones who use pullbacks to build positions in quality names, maintain discipline on stops, and resist the urge to mistake speed for safety. The next two to three weeks of earnings will tell us whether this is a new leg higher or the best exit ramp before a retest.

Trade accordingly.

🖊️ From Lance’s Desk

This week's #MacroView blog examines the BLS employment report, its flaws, and a potential solution to improve its readings.

Also Posted This Week:

• Will Private Credit Cause The Next Financial Crisis? - RIA - by Michael Lebowitz
• S&P 500 Outlook: The 8.2% Rally & What Comes Next. - RIA - by Lance Roberts

📹 Watch & Listen

In this week's video, we discuss the market as it breaks out to new highs in one of the sharpest rallies this century.

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📊 Market Statistics & Analysis

Weekly technical overview across key sectors, risk indicators, and market internals

💸 Market & Sector X-Ray: Market Cracks Support

Previously, we noted that: "With every other sector extremely oversold, the logical setup now is for that rotation out of energy into other areas of the market to begin as soon as clarity on Iran emerges." As shown in the upper-right box, that is what happened over the past two weeks, as the entire premium in the energy sector reversed and technology surged. With the market now rebalanced, we should see a broader advance next week. Markets are getting overbought, so rebalance risk as needed.

📐 Technical Composite: 79.77 - Market Surge Approaching Overbought

As noted previously, "The odds of a reflexive rally are increasing. We are currently at levels we haven't seen since 2022." That reflexive rally came hard, with the market posting its best performance since March 2022. We are approaching overbought levels, so use this rally to rebalance risk and exposures as needed.

🤑 Fear/Greed Index: 74.37 – Investors Go All In

As we noted two weeks ago, "While not at 'fear levels' yet, the selloff has been rather sharp, so a reflexive rally." The reflexive rally came with a vengeance over the last two weeks, and investor sentiment and positioning went from "fear" to borderline "extreme greed" in just that time. There is now decent momentum behind the market, but if you didn't like the recent selloff, this is a good time to rebalance risk and portfolio allocations.

🔁 Relative Sector Performance

In our last update, we stated: "Given the divergence between Energy and the rest of the market, profit-taking in Energy seems prudent." This past week, energy sold off sharply while Technology staged a massive rally. Currently, Technology and Transportation are very overbought. Take profits and rebalance risk accordingly.

📊 MFBR Index (Money Flow/Breadth Ratio Indicator): 45% = Neutral/Bullish

NEW! MFBR Index: The Money Flow Breadth Ratio (MFBR) model is a rules-based equity allocation framework that uses weekly S&P 500 money flow data to generate buy, sell, and neutral signals. It is designed to systematically adjust portfolio equity exposure in response to the direction and persistence of institutional capital flows, aiming to reduce drawdowns while capturing the majority of market upside.

"As of April 17, 2026, with the S&P 500 at 7,126.06, the Money Flow Breadth Ratio (MFBR) stands at 45% and rising. This places the indicator in neutral territory (40-50%), triggering a NEUTRAL signal. The prior week's reading was 40%, representing a 5% decline over the trailing four weeks. The increase in the MFBR suggests both money flows and breadth are improving, maintain current equity exposures, and rebalance risks as needed."

📊 Sector Model & Risk Ranges

What a difference two weeks can make. The sectors that were most aggressively extended, as we warned, reversed. The sectors that were most beaten up were aggressively bid. This is why we regularly recommend rebalancing when sector performance becomes too bifurcated. The good news is that the market has recovered and the bulls are back in control. The bad news is that there are an increasing number of bearish crossovers, which typically signal rougher times ahead. With most sectors and markets well outside their respective ranges, take profits and rebalance risk, a pullback is increasingly likely over the next two weeks.

Have a great week.

Lance Roberts, CIO, RIA Advisors

The post Short Covering Rally Or Is The Bull Market Back? appeared first on RIA.

Allbirds, the sustainable sneaker company, has recently fallen on hard times, with revenue down by more than 50% from its peak. To help right the ship, Allbirds is rebranding itself as NewBird AI. Allbirds closed all of its U.S. stores and sold its intellectual property for $39 million. They are also raising $50 million in the effort to morph into an AI computing infrastructure company. It's unclear how $50 million will help them, given that they are going up against companies with trillion-dollar market caps spending hundreds of billions on AI, but its share price, which rose 700% on Wednesday, argues otherwise

In rebranding, Allbirds to NewBird AI, its executives are taking a page straight from the crypto playbook — and before that, the dotcom playbook:

Struggling company - hot narrative - rebrand company – stock price surges.

Remember in 2017 when Long Island Iced Tea became Long Blockchain? The original template was envisioned during the 1998 dotcom boom. For example, Books-A-Million, a regional bookstore chain, announced that it had updated its website, and its stock went from $3 to $47. It did not launch a new business or even pivot to e-commerce. Two weeks later, the stock gave up most of the gains. The underlying business was irrelevant to speculative investors. The words "internet" and “website” drove investors into a frenzy.  Today, the word "AI" is magic. It suspends disbelief and sends retail investors into a speculative frenzy despite the lack of evidence that a name change and new direction will materially impact the bottom line.

What To Watch Today

Earnings

Economy

Market Trading Update

Yesterday, we noted the S&P 500 had printed a new all-time high, erasing every point of the Iran-war selloff in just over two weeks, while the Nasdaq extended its winning streak to 11 consecutive sessions, the longest in the index's history. The question now isn't whether the rally was real. It's what historically happens after a move this extreme.

The statistics are hard to ignore. As 3Fourteen Research noted this morning, the S&P 500's 9.8% gain over the last 10 trading days ranks in the 99.7th percentile of all 10-day rolling returns since 1950. Only 20 comparable episodes exist in 76 years of data.

The forward numbers are unambiguously bullish: the average next-12-month return is +19%, with 17 of 20 instances positive. The Nasdaq tells a similar story. Consecutive-session streaks of this magnitude have produced a positive index 12 months later 100% of the time, with an average gain of +26%.

Bottom line: moves this violent to the upside are not tops. They are almost always the early innings of something larger. The mathematical reason is simple. Markets that surge with this kind of force are breaking out of oversold conditions against a backdrop of heavy short interest and defensive positioning. That combination takes time to unwind as underinvested managers chase performance and short books get progressively covered into strength.

That said, a 99.7th-percentile move does not immunize the market against a near-term pullback. History is clear that the path to those +19% and +26% average returns is rarely a straight line. In the 20 prior instances, the majority produced at least one 3-5% drawdown within the subsequent three months before resuming higher. The first pullback off this kind of extreme is usually a buying opportunity, not a topping signal.

The technical picture supports that framing. The 50-DMA never crossed below the 200-DMA during the March selloff. The VIX has collapsed below 20. Breadth is expanding, with the percentage of S&P 500 constituents above their 50-DMA now recovering through 65%. These are not the internals of a market at exhaustion. They are the internals of a market that has just repaired its damage and is starting to trend again.

Near-term, we are watching for the first meaningful dip as the signal to add, not reduce, exposure. A pullback to the 20-DMA would represent roughly a 3% retracement from yesterday's close and align with prior post-breakout consolidations. For now, any retest of prior resistance-turned-support would be an even more attractive entry. We continue to maintain exposure on confirmed strength while keeping stop levels intact beneath the 50-DMA.

The data says don't fade this rally. It also says don't chase it here. Let the market give you the dip, then act.

Is Large Cap Growth Back In Vogue?

The first graphic below, from the soon-to-be-released SimpleVisor AI, shows the stark outperformance of large-cap growth stocks over value stocks over the last five days. Further, it shows the technology sector is up nearly 10% over this period, while the former market leaders, staples, and utilities were down, despite the market surge. To help assess whether the value-over-growth trade is dead or just taking a rest, we share some longer-term perspectives in the second graphic.

The graph shows the price ratio between the Vanguard large-cap value ETF and the Vanguard mega-cap growth ETF. The trend over the last 15 years has been lower, ie, growth has greatly outperformed value. To the bottom right, we see the nearly 20% outperformance of value over growth, which started in November. The recent outperformance of growth over value has erased about a third of the move. Will the current experience be like the temporary value outperformance during the Liberation Day events, or could it be more sustainable, as we saw in 2022? Before considering our questions, it's worth noting that the real value sector is technology and mega-cap growth, as shown in the third graph.

Poor Breadth

The graphic below, courtesy of Jason Goepfert, shows that when the S&P 500 hits a record high, as it just did, and less than 5% of its stocks are at 52-week highs, the average returns tend to be slightly below average. Moreover, there have been more negative return events when this condition was met than positive. Bear in mind that the bear markets of 1929 and 2000 drag down the results. This raises the question of whether the recent rally is a dead cat bounce with poor breadth or a continuation of the bullish trend existing before the Iranian conflict.

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"March's 178,000 BLS jobs report came in nearly three times Wall Street's 60,000 estimate. Markets celebrated. Almost nobody mentioned the entire beat traced back to doctors returning from a strike and weather rebounds. That's not strength. That's noise — and it's a pattern we can no longer afford to ignore."

Every time we see the release of the BLS jobs report, there are always problems with it. Over the years, I've come to accept that most government statistics are imperfect. Regardless, they are what markets pay attention to. However, it is increasingly clear that the BLS Jobs report over the last three years has been problematic. That report lands on the first Friday of every month and sends equity futures swinging before markets open. The problem is that the report has become so distorted by sampling failures, model-based imputations, and seasonal adjustments layered on top of more seasonal adjustments that the monthly print often tells us almost nothing reliable about the actual state of employment.

I realize that is a serious claim that borders on heresy, but let me back it up with the data. I want to show you what I believe is a simpler, more honest alternative. One that filters out the noise and reveals the employment trend that matters to investors and policymakers alike.

Let's start with the March BLS jobs report.

March 2026: A Beat That Wasn't What It Seemed

The March employment report showed 178,000 nonfarm payrolls added in the US economy. That was against a Wall Street consensus estimate of just 60,000. How did analysts get it so wrong? But here's what you need to understand about what's actually inside that number.

Healthcare alone contributed 76,000 jobs, the single largest sector gain in the entire report. The BLS explicitly noted that offices of physicians added 35,000 workers as striking Kaiser Permanente nurses and physicians in California and Hawaii returned to work. That's not organic job creation; that's the statistical reversal of a prior negative. Construction added 26,000 jobs following weather-related losses in January and February. Transportation and warehousing contributed 21,000. Strip out those three mechanical rebounds, and you're looking at a print far closer to the underlying trend.

Meanwhile, federal government employment fell another 18,000 in March, extending an aggregate decline of 355,000 jobs, roughly 11.8%, since October 2024. Financial activities shed 15,000 more, now down 77,000 from its May 2025 peak. February was revised sharply downward, from a reported decline of 92,000 to an actual decline of 133,000. January was nudged upward from 126,000 to 160,000.

So, what does that mean? The net job creation across the two months was negative 7,000. The prior two months were weaker than initially reported. Notably, March's strength was largely a rebound from mechanically depressed prior readings.

That pattern of wild initial swings followed by quiet downward revisions isn't unique to this cycle. It's a structural feature of the methodology itself. There are three main reasons for it:

• The sampling problem,
• The Birth-Death model, and
• The seasonal adjustment framework

The credibility of any single monthly print becomes very difficult to defend because of these issues.

Three Structural Flaws In Every Monthly BLS Jobs Report

Let's start with the "sampling problem."

The BLS jobs report starts with an establishment survey that currently samples approximately 119,000 businesses and government agencies, covering about 622,000 individual worksites. That sounds comprehensive until you learn that this represents roughly just 26% of all nonfarm payroll jobs in the United States. The BLS extrapolates the remaining 74% using statistical modeling. Furthermore, first-closing response rates, the data forming the basis for the initial monthly print, have slipped from roughly 70% before the pandemic to around 60% today, according to Michael Horrigan, a former 33-year BLS veteran now at the Upjohn Institute for Employment Research.

What that means practically is that the jobs number the financial press reports as "established fact" on the first Friday of every month is based on roughly 60% of a survey that covers only 26% of total employment. The remaining data gets filled in over the next two monthly revisions as additional survey responses come in, with 90% coverage by the second close, and 95% by the third. This is why the data is constantly revised after the first job's print. These are not adjustments, but rather actual data arriving after the markets have already moved on an estimate.

That leads us to the second problem: the "birth-death adjustment."

Because the BLS cannot survey businesses that don't yet exist or immediately identify businesses that have closed, it fills that gap with a model called the Birth-Death model. The concept is straightforward: estimate the net employment effect of new business formations and closures using historical patterns from the Quarterly Census of Employment and Wages. There is nothing wrong with the idea. The execution is the problem, which has grown substantially worse in recent years.

The QCEW data used to feed the Birth-Death model runs 6 to 9 months behind the current reference period. The BLS is forecasting current business births and deaths using information about conditions from more than half a year ago. In a stable, slowly evolving economy, that lag might be manageable. In an economy undergoing rapid structural shifts, such as pandemic-driven business formation, tariff-driven disruptions, and federal workforce reductions, the model fails in predictable ways. Fed Chair Jerome Powell acknowledged this directly in a press conference following the August 2025 benchmark revision, noting there had been an "almost predictable overcount" of jobs in recent quarters stemming from Birth-Death model errors.

The consequences of that failure are not small. The preliminary benchmark revision for March 2025 showed the BLS had overstated nonfarm employment by 911,000 jobs over the prior twelve months. When the annual benchmark process was finalized with the January 2026 release, the full-year 2025 employment change was revised from an initially reported +584,000 to just +181,000, a reduction of 403,000 positions. That means the average monthly payroll gain for all of 2025 was approximately 15,000 jobs after revisions, compared to the 48,000 the real-time reports had been signaling. For most of 2025, the financial media reported a labor market roughly three times stronger than the actual data later confirmed.

Three consecutive years of overestimation, each requiring a downward correction at benchmark time. The BLS acknowledged the pattern explicitly, for three years running, the establishment survey overstated job creation and required downward revision. Erica Groshen, a former BLS Commissioner, pointed to a structural explanation: the post-pandemic surge in business formations populated the economy with smaller, more marginal firms that were more likely to fail quickly than the historical patterns on which the model was calibrated. The model counted those births as durable job creation. They weren't.

Notice what this chart reveals. The Birth-Death model subtracts a substantial number of jobs from the January headline, roughly 514,000 net, because the seasonal pattern calls for business deaths to dominate in that month. Then it adds hundreds of thousands back from April through June, the period when new business formation historically peaks. This means a significant portion of the spring "hiring surge" that markets celebrate each year is not actually hiring. It's a model-generated imputation based on patterns that, as we've now confirmed through three years of benchmark corrections, have materially overstated reality.

Lastly, there are the "seasonal adjustments" to correct distortions that no longer exist.

Seasonal adjustments are conceptually sound. The purpose is to strip out recurring calendar effects, like holiday hiring and summer construction, to expose the underlying trend. The problem is that the COVID pandemic fundamentally broke the seasonal patterns the X-13 ARIMA-SEATS algorithm uses as its baseline. The model requires historical data for calibration. Therefore, when the prior three to five years include a pandemic lockdown, a fiscal-stimulus-fueled hiring explosion, a post-pandemic normalizing surge, and a federal government shutdown that eliminated an entire month of data collection (October 2025), the seasonal "expectations" baked into the model no longer represent any recurring real-world pattern.

The Federal Reserve Bank of Dallas identified a specific version of this problem. When the benchmarked and non-benchmarked data are combined into a single series and then seasonally adjusted together, the algorithm overestimates the negative seasonal factor in certain transition months. This produces artificial jumps in adjusted employment that partially reverse in subsequent months. Here is the thing: this is a known technical issue within the methodology, and it directly contributes to the volatility we've observed in monthly prints over the past two years. Seasonal adjustments are compounding the distortions introduced by the Birth-Death model rather than correcting for them.

A Better Measure: The 12-Month Household Survey Average

I understand that the individuals producing the BLS jobs report are smart. However, there is a method I find genuinely useful. Furthermore, there is a growing number of serious economists and strategists who have been arguing the same. The Current Population Survey, known as the household survey, is a separate instrument that interviews approximately 60,000 households each month. It measures employment completely differently from the establishment survey, by counting people rather than jobs. It includes self-employed workers, agricultural workers, unpaid family workers, and gig economy participants that the payroll survey entirely excludes. Each employed person is counted once, even if that person holds multiple jobs, where the establishment survey would count them separately on each payroll.

However, the household survey has a very real limitation I'll acknowledge directly: its month-to-month sampling error is large. The BLS states it requires an over-the-month change of about 650,000 to reach statistical significance in the household survey, compared with roughly 122,000 in the establishment survey. A single month of household survey data is nearly useless as a real-time indicator. But that's precisely the point. You shouldn't be calibrating investment theses to a single month of data from either survey. The single-month establishment survey number we collectively obsess over is a rough draft. That "draft" has been revised downward by hundreds of thousands of jobs in each of the past three annual benchmark cycles.

What resolves the household survey's volatility problem is the same tool that resolves the establishment survey's revision problem: averaging across a longer window. A 12-month rolling average of household survey employment changes smooths sampling noise, eliminates the seasonal adjustment distortions that plague payroll data, sidesteps the Birth-Death model entirely, and produces a trend line that doesn't get substantially revised away a year later. It measures what actually happened to actual people across a full year of data, and it's not subject to the backward restatement risk that has now repriced three consecutive years of establishment survey history.

The raw monthly household survey numbers are erratic. As shown, they can swing several hundred thousand in a single month. These swings are common and convey no useful information about the trend. But the 12-month rolling average presents a coherent, readable picture of employment momentum. What that picture has shown over the past two years is a labor market that has been clearly and consistently decelerating, a trend the nonfarm payroll headline number consistently overstated, confirming the weakness only through downward revisions well after the fact.

This approach also has historical credibility. As researchers at Econbrowser have noted for years, the household survey tends to lead the payroll survey at economic turning points, precisely because it doesn't depend on the Birth-Death model's lagged business formation data. When the economy actually turns, the household survey's trend tends to capture it first. The payroll survey catches up when the benchmarks arrive.

The Counterargument And Why It Doesn't Hold Up

The standard defense of the nonfarm payroll report is its statistical precision at the point of release. The margin of error is smaller. The industry detail is richer. The sample is larger. All technically true in isolation. What that argument ignores is that statistical significance at publication becomes irrelevant if the BLS revises the number by 400,000 to 900,000 at benchmark time. Precision on a wrong number is worse than a wide confidence interval on a right one. Therefore, if you're calibrating your portfolio positioning to a figure that has a documented, recurring pattern of overstating job creation by hundreds of thousands of positions annually, it could be problematic.

The second common defense is that revisions are normal and expected. I agree, revisions are normal. But the direction and magnitude of BLS revisions over the past four years have been anything but normal. Three consecutive years of systematic overestimation, each requiring a significant downward benchmark correction, is not a random statistical process. It's a model calibrated on a world that no longer fully exists.

When you apply a 12-month rolling average to the household survey's monthly employment changes, the picture that emerges is more sobering than the nonfarm payroll headlines have suggested. The trend has been decelerating since mid-2023, with the rolling average settling into a range of roughly 40,000 to 60,000 new employed persons per month, well below the 150,000 to 200,000 range associated with a genuinely healthy labor market absorbing normal labor force growth.

Full-time employment as measured by the household survey has been particularly weak. Part-time and gig work have driven much of the apparent stability in the headline count of employed persons. That's a meaningful distinction for anyone gauging the actual health of consumer spending capacity and corporate hiring intentions. A worker holding two part-time jobs is counted as one employed person in the household survey, but appears as two separate payroll additions in the establishment survey. In a period where part-time work and multiple job-holding have increased, the establishment survey almost certainly overstates the breadth of labor market strength relative to actual economic participation.

Conclusion

Federal government employment is now the most visible structural drag, with 355,000 positions eliminated since October 2024. This won't reverse in the near term, and the effects will compound as displaced federal workers cycle through unemployment or shift into the private sector, which is itself absorbing headwinds from tariff uncertainty and tightening financial conditions.

The BLS jobs report, as currently structured and consumed by markets, is producing more noise than signal. The combination of a shrinking active sample, a Birth-Death model running on six-to-nine-month-old data, post-pandemic seasonal distortions that haven't fully resolved, and three consecutive years of directionally biased overestimation has created a situation where markets are trading on a rough draft that gets substantially rewritten after the fact.

The 12-month rolling average of the household survey isn't perfect. It lags real-time events. It captures the trend rather than the turning point. I'll grant every one of those limitations. But perfection isn't available in economic measurement. The relevant comparison is a noisy, frequently revised, model-dependent estimate versus a smoother, more honest representation of what actually happened to employment over a full year of data. For understanding where the labor market actually stands, as opposed to where the algorithms think it stands at 8:31 a.m. on the first Friday of the month, the household survey average wins on every dimension that matters for longer-term investment decisions.

The simplest argument for this proposed approach is also the most damning for the status quo. When the BLS itself revises 2025's entire annual job creation figure from 584,000 to 181,000, the question isn't whether the monthly number is reliable. The question is why we're still pretending it is.

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On Monday, our Commentary, The Market Knows What You Don't, shared an important lesson about how markets function. The message was timely, as fear and volatility over the prior few weeks had caused great anxiety among many investors. We wrote the following to help investors maintain a north star during these challenging times:

Market prices are based on all available information. Some of the information is widely known, while some is known only to a few investors. Regardless of what we know, think, or believe, the market knows more. The market is not always right, but given that it collectively knows more than any one of us, its price movements deserve our respect.

When we wrote that the ceasefire was fresh, the market correctly foresaw it. From its lows on March 30th up to the ceasefire, the S&P 500 rose about 7%. At the lows, the rhetoric from President Trump and Iranian spokespersons was incredibly concerning. It seemed there was little hope of peace. Moreover, and of greater concern to investors, some pundits were calling for oil prices to surge to $150, or even $200, per barrel. The rally from the bottom gained strength and got a big jolt from the ceasefire agreement. Despite the tenuous agreement and ongoing military actions across the Middle East, the agreement seemed likely to fail, yet the market continued to rise.

Interestingly, as we write this on Wednesday, April 15th, we are hearing from Fox News that Trump unofficially declares the war is near an end. Per Fox: NEW: President Trump says the war with Iran is "close to over." Great news, yet the market doesn't seem to care. The S&P 500 opened flat, and crude oil was slightly higher. The market had already priced in the good news before it was known to the general public. This is not a "we told you so" commentary, but rather another reminder to listen to the markets, regardless of whether you agree with them. We end with another quote from Monday's Commentary:

The moment we believe our views outweigh the market’s, we have stopped managing risk and started taking it.

What To Watch Today

Earnings

Economy

Market Trading Update

Yesterday, we discussed the bull versus bearish view of the market, and yesterday, it happened. The S&P 500 tagged a new all-time high, erasing every point of the Iran-war selloff in just over two weeks. As we noted here on Tuesday, the index was sitting within a single trading day of the January 27th peak, and the market didn’t wait long to close the gap. At the same time, the Nasdaq logged its 10th consecutive positive session, the longest winning streak the index has produced in years.

The bears have a ready-made explanation: short-covering. They’re not wrong. As we’ve discussed throughout this rally, short interest was elevated coming into the reversal, and headline-driven squeezes have a ceiling. Trump’s “deal” comments ignited the move; the Islamabad talks and ships clearing the Strait of Hormuz extended it. That’s a momentum sequence built on sentiment, not earnings revisions or balance sheet improvements. When hope meets a harsher reality, these moves tend to give back ground quickly.

However, the technical setup suggests more than just pure short-covering. The 50-day moving average never crossed below the 200-day during the entire selloff, and no death cross was ever confirmed. The VIX has retreated below 20. Breadth has improved. These are not the internals of a market in distribution. The comparison to the post-Liberation Day rally holds. The market also looked like a short squeeze at the time, and it kept going.

The honest answer is that both camps are right about their respective pieces. This rally was ignited by short-covering but sustained by technical confirmation. With JPMorgan’s earnings in the rearview and a full slate of S&P 500 companies reporting over the next three weeks, the market now has a fundamental catalyst to anchor to, or a reason to re-examine the bull case more critically. The macro and geopolitical backdrop hasn’t structurally changed. It’s softened. That’s not the same thing.

We’re watching the all-time high level as both a magnet and a potential ceiling. A clean breakout on improving volume would be a meaningful signal that this is more than just borrowed momentum. Until then, we’re adding exposure on confirmed strength while keeping stop levels intact.

Anthropic's Valuation Doubles In Two Months

Anthropic, the company developing the Claude AI model, is reportedly taking investor offers that would value it upwards of $800 billion. If they decided to offer more shares, the price would be more than double the $350 billion valuation it had just two months ago, at the time of its February fundraising round. The company hasn't accepted any offers yet, and there's no guarantee it will.

Revenue growth seems to be behind the investor interest. Anthropic recently disclosed it has reached $30 billion in annualized revenue, up sharply from $19 billion just months earlier. For context, rival OpenAI is generating roughly $2 billion per month in revenue and recently raised over $120 billion at an $850 billion valuation.

Further driving investor interest is that they know of the potential for a market IPO in the Fall.

Will Private Credit Cause The Next Crisis?

When subprime defaults started to increase, losses weren’t the only problem. Equally important was a lack of trust among the largest financial institutions. Eroding confidence was most evident in the boiler room of the financial system, the overnight Fed Funds and repo markets. 

These overnight loan markets ensure banks and brokers have ample daily liquidity to function. The biggest risk to the financial system is the concern that money lent today will not be repaid tomorrow. Once the rumors of losses started to grow, Wall Street questioned what their counterparties might be on the hook for. Trust was lost, and the overnight repo markets seized up.

Lehman Brothers, which had survived the Great Depression, went bankrupt in a weekend. AIG, a large issuer of synthetic insurance, collapsed. Many of the world’s largest banks and brokers were on the brink of failure. The web of leverage and derivatives surrounding subprime mortgages was so tight that pulling on one thread unraveled the entire financial structure.

While it’s fair to say that defaulting subprime borrowers were certainly the match, the bonfire, fueled by greed and irrational expectations, had been building for years.

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Believe it or not, it's been 18 years since the Global Financial Crisis (GFC). Despite many detailed investigative reports on the events and even the popularity of The Big Short, a box-office hit and bestselling book, the role of subprime mortgages in the near-fatal collapse of the banking system remains a mystery to many investors. As a result, some people think that recent rumblings in private credit may be a precursor to a new financial crisis.

Given some misunderstanding linking subprime mortgages and private credit, we discuss how leverage and derivatives, layered atop subprime mortgages, were at the heart of the GFC. A better understanding of that event will help better assess whether recent woes in private credit are an omen of another crisis or an overstated concern.

When we started writing this article, we thought we would compare subprime mortgage securities and the GFC with the current situation in private credit funds. However, when writing about the causes of the 2008 subprime disaster, we thought it was an important enough lesson on the dangers of leverage to make a standalone article. Accordingly, Part Two of this article will describe the structural flaws of private credit and, importantly, explain why it, on its own, is highly unlikely to lead to another financial crisis like the GFC.

Subprime

In the early to mid-2000s, leading up to the GFC, the amount of outstanding subprime loans grew rapidly to $1.3 trillion. At its worst, the estimated loss rate on these loans exceeded 40%. An approximate $600 billion loss is certainly significant, but it wasn’t nearly enough to bring the largest banks and brokers, and the entire global financial system, to its knees.

What made the GFC nearly catastrophic was the extraordinary web of leverage, complexity, and interconnected counterparty risks built around subprime loans. As we share below, it is estimated that total GFC-related losses were between $3.5 and $4.0 trillion, more than three times the losses that would have resulted if every single subprime loan had defaulted.

The Leverage Tree

The reason a relatively small subprime market caused such devastation is derivatives and the leverage built on subprime loans. Think of the GFC as a tree, with subprime loans as its roots.

The tree started to grow when banks bought subprime loans and packaged them into mortgage-backed securities (MBS) with multiple tranches that divvied up the cash flows. For instance, subprime MBS investors in the AAA-rated tranches were repaid first, while the lowest tranches absorbed losses first and were repaid last. Yields varied with perceived risk. These structures attracted a wide array of buyers from the most conservative insurance companies to the most aggressive hedge funds.

Heading into 2006 and beyond, the losses on the underlying subprime loans were growing rapidly, and the lower-rated MBS tranches were quickly losing value. Because it was much easier to sell the higher-rated tranches, banks and brokers were typically stuck holding much of the lower-rated MBS. Given market conditions and mounting losses, they needed to sell them. Since there weren’t many willing buyers at the prices they wanted to sell at, they created Credit-Debt Obligations (CDOs). The bank would take a bunch of lower-rated tranches from numerous MBS and repackage them into a new vehicle (CDOs), in which the cash flows were divided among tranches, like in the MBS.

Despite the poor quality of the underlying MBS tranches, the rating agencies assigned AAA ratings to the senior, first-pay tranches, fooling conservative investors into essentially buying junk-rated debt. Adding to the risk, hedge funds and other investors leveraged the CDO tranches five, ten, and sometimes twenty times over.

Even if the story ended here, the risks stemming from the original subprime loans were tremendous. But the story gets even crazier.

Synthetic Exposure

The investor appetite for the extra yield offered by subprime mortgages and CDOs could not be filled by the existing mortgages. Accordingly, Wall Street created synthetic CDOs to feed hungry investors.

The MBS and CDOs we discussed were backed by real cash flows of subprime mortgages. Synthetic CDOs were securities that were backed by nothing. They used reference mortgages to determine the cash flows to and from investors. 

The synthetic CDO seller, or issuer, collected premiums from investors who were buying protection to hedge their subprime mortgages or seeking to profit from subprime defaults. In exchange for receiving premiums, the issuers absorbed losses on the bonds referenced in the agreement.  

Unlike a regular CDO, a synthetic CDO could reference the same CDO an unlimited number of times. If there were $100 million of a particular CDO in existence, there could be $1 billion, $5 billion, or more of synthetic CDO exposure written against it.

If a homeowner defaulted on a $200,000 loan in Omaha, Nebraska, the issuers of synthetic CDOs could collectively lose $2 million or much more in some cases.

It has been estimated that there was between $33 trillion and $45 trillion in synthetic credit exposure, based on the cash flows of $1.3 trillion in subprime loans. The graph below, courtesy of the IMF, shows the massive growth in CDS contracts leading to the GFC. Note that synthetic CDOs accounted for a large share of the growth.

Trust Followed Defaults

When subprime defaults started to increase, losses weren’t the only problem. Equally important was a lack of trust among the largest financial institutions. Eroding confidence was most evident in the boiler room of the financial system, the overnight Fed Funds and repo markets. 

These overnight loan markets ensure banks and brokers have ample daily liquidity to function. The biggest risk to the financial system is the concern that money lent today will not be repaid tomorrow. Once the rumors of losses started to grow, Wall Street questioned what their counterparties might be on the hook for. Trust was lost, and the overnight repo markets seized up.

Lehman Brothers, which had survived the Great Depression, went bankrupt in a weekend. AIG, a large issuer of synthetic insurance, collapsed. Many of the world’s largest banks and brokers were on the brink of failure. The web of leverage and derivatives surrounding subprime mortgages was so tight that pulling on one thread unraveled the entire financial structure.

While it's fair to say that defaulting subprime borrowers were certainly the match, the bonfire, fueled by greed and irrational expectations, had been building for years.

Summary

With that background on the GFC, we hope to show you in Part Two the differences between subprime mortgages and private credit, and moreover, why we do not fear that private credit losses can cause havoc on the financial system. That said, we do have concerns that losses and credit anxieties could have broader impacts on broader liquidity spilling over into the economy. 

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Diana Choyleva wrote an excellent editorial for the Wall Street Journal entitled "The Iran War Is A Boon For The Petrodollar." She pushes back against claims that the Iran conflict is accelerating the death of the petrodollar. Instead, she argues the opposite: between Iran and Venezuela, the U.S. is defending and bolstering dollar dominance in the oil trade.

The 75-year-old petrodollar system rests on oil being priced and traded in dollars, which keeps the dollar prominent in all global trade. China has been undermining the petrodollar through yuan settlement systems and by deepening its ties with some Arab nations.

Rather than Iran being a "perfect storm" weakening the petrodollar, as some argue, Choyleva sees American military engagement in Iran as supportive of the dollar. Simply, control the flow of oil, and you control the currency it's traded in. Most Arab nations back the US campaign against Iran. Importantly, "the security commitment was tested; it held." This reinforced the security-for-oil-pricing bargain that underpins the petrodollar system. The removal of Venezuelan President Maduro and influence over Venezuelan oil accomplishes similar goals. If the US controls Western Hemisphere oil reserves, it would command more oil than OPEC combined, thus providing enormous leverage for keeping oil priced in dollars.

The author sees two scenarios for how the war ends. First, an agreement that gives the U.S. influence over Iranian oil flows. Second, US forces seize Kharg Island and police the Strait of Hormuz. In her words, controlling "the choke point through which a fifth of the world's oil flows." Either way, both events lead to more dollar-based oil trades, not less.

She concludes:

But those who conclude that the petrodollar is already in its death throes are reading the map upside down. The storm is real. The dollar is fighting back.

What To Watch Today

Earnings

Economy

Market Trading Update

In yesterday's update, we discussed the market backdrop from an extreme negative perspective, which provided the fuel for the recent reversal. However, the rally off the April 3rd war lows has been nothing short of extraordinary. From the closing lows, when the S&P 500 sat more than 7% in the red for 2026, the index has staged a near-vertical recovery that put it back above both the 50-day and 200-day moving averages by April 8th. As of yesterday, the market now sits within an easy trading day of the all-time high set on January 27th.

Unsurprisingly, the bears are calling this a textbook short-covering squeeze. They may well be correct; as discussed yesterday, the very high levels of short interest certainly provided the rally's support. However, the bulls see something more durable taking shape, parlticularly are earnings season gets underway. Both camps have a legitimate case, which is exactly what makes this juncture so critical to get right.

The bear argument is straightforward: this rally was fueled by headlines, not fundamentals. Trump's comment that Iran wants to "work a deal" triggered an afternoon surge on Monday, and the Nasdaq logged what Bloomberg described as its best nine-session run on record. Yesterday, the markets advanced further on news of ongoing discussions on a deal and on ships moving through the Hormuz Strait. Moves that fast, driven by geopolitical hope rather than verified policy shifts, have a habit of retracing sharply the moment expectations meet a harder reality. Unfortunately, the macro and geopolitical backdrop hasn't changed - at least not yet.

That said, we shouldn't dismiss the technical improvement. The 50-day moving average never crossed below the 200-day during this selloff, so no death cross was ever confirmed. The market is now above all major moving average resistance, breadth has improved, and the VIX has retreated below 20. Those are not the internals of a market in distribution. As shown in the chart, this rebound is very similar to the post-Liberation Day rally that took the markets back to highs. With earnings season now underway, the market also has something to focus on besides Iran headlines. Those earnings reports will likely take the lead over the next three weeks.

We're raising our equity exposure modestly on this break back above the 200-day, but we're not abandoning caution. The all-time high is close enough to be a magnet, but also close enough to be a ceiling if the geopolitical situation deteriorates again. We'll add further only on confirmation of a clean breakout with improving volume. Until then, we treat this as a market that has earned the benefit of the doubt, not a blank check.

The rally has technical merit and should be respected, but the risk of a retest remains real. Increase exposure on strength, maintain stop levels, and don't mistake speed for sustainability.

JPM Beats Expectations, But Its Stock Trades Lower

"Buy the rumor, sell the fact" best describes the market's reaction to JP Morgan's (JPM) earnings. America's largest bank handily beat expectations across almost all metrics, yet its stock opened down 2%. What gives:

1. CEO Jamie Dimon's cautious commentary: While the earnings were great, the forward-looking commentary was cautious. Accordingly, he said his bank is preparing for a wide range of different environments and risks. In particular, Dimon noted

"an increasingly complex set of risks — such as geopolitical tensions and wars, energy price volatility, trade uncertainty, large global fiscal deficits and elevated asset prices."

2. High expenses: Heading into earnings, the stock was already weighed down by guidance issued late last year that 2026 expenses would exceed $105 billion. That was about 10% above analysts' expectations. The culprit is AI investments, credit card competition, and branch expansion. The stock fell on that news at the last earnings call, and given that Dimon spoke again about updating technology and integrating AI systems, he likely didn't calm concerns.

3. Context: JPMorgan's stock was trading well before the earnings report. It has climbed about 10% since late March, despite higher oil prices and the potential negative impact on its credit book. Thus, a lot of good news was already priced in.

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A battle is raging in the Halls of Congress between the banks and the crypto industry. The spark was a judgment by the White House's Council of Economic Advisers, which recommended that stablecoins be allowed to pay interest to their holders. As a result of the Genius Act, passed almost a year ago, stablecoins are required to hold, as collateral, 100% reserves of US Treasury securities. However, the act banned stablecoins from paying interest. Shortly after the act passed, the crypto industry began pressing Congress to allow interest payments to stablecoin holders. Doing so would effectively make them a direct competitor to banks for checking and savings accounts.

Thus, the banks, especially the smaller and mid-sized regional banks that don't offer crypto services, could see a drain on deposits without an uptick in crypto business. Bear in mind that the assets banks buy and the loans they make require deposits to fund them. Losing deposits to stablecoins could sharply curtail their business. The President is generally pro-crypto and was a big supporter of the Genius Act. The question, however, that will come up for a vote this spring or summer, is whether the banking lobby will be able to persuade politicians not to allow direct competition via interest payments on stablecoins.

The graph below shows that the Invesco Big Bank ETF (KBW) has decently outperformed the iShares regional bank ETF (IAT) since 2025. If interest on stablecoins is allowed by Congress, we suspect the performance gap will further widen. Until there is more clarity, prioritizing larger banks over smaller ones seems like an appropriate allocation decision.

What To Watch Today

Earnings

Economy

Market Trading Update

Yesterday, we reviewed the technical backdrop for the market this week. We laid out the bull and bear case for the market in yesterday's technical blog as well, which is worth a review. Last week's price action felt like a release valve being pulled. Goldman's prime brokerage flows guru, Lee Coppersmith, described a clear pivot toward risk-on, noting that sentiment has shifted toward FOMO among investors who dumped positions amid peak AI disruption fears and rising Middle East tensions.

That pivot makes sense from a mechanics standpoint. Short exposure across U.S. macro products, index futures, and ETFs had climbed to the 93rd percentile over the past five years, with hedge fund gross exposure near an all-time high of 307%. When the Iran ceasefire headlines crossed, that positioning became a coiled spring. Shorts covered, hedges unwound, and global equities were net bought for the first time in eight weeks, with Goldman's Equity Fundamental Long/Short Performance Estimate rising 4.01%, the best weekly reading since February 2021.

That's the good news, and we've seen this movie before. The build-up of stress in the market gets investors overly bearish, and then "hope" arrives, relieving the pressure. The "hope" causes a rush to gain positioning, short positions unwind sharply, and the headline indices surge. The trap, however, is confusing the "market squeeze" with a new bull leg higher.

The S&P 500 is now up roughly 8% from its 2026 low of 6,316. That's a meaningful bounce, and we're not dismissing it, but positioning remains friendly for further upside. This suggests that investors consider holding exposure through the catalyst-rich earnings season, particularly in Mag 7 names, where earnings growth is expected to be the strongest.

However, the macro environment hasn't changed just because the shooting paused. Goldman Asset Management's base case is that energy flows through the Strait of Hormuz will remain largely halted for a few weeks before gradually normalizing, with the caveat that if they don't, market fallout will be non-linear. Add in inflationary pressures from those higher oil prices, a Fed with little room to maneuver, and earnings estimates that still embed assumptions from a pre-disruption world, and you have a setup where the technical rally could easily meet a macro wall.

As such, we suggest remaining anchored and adhering to your process. Use rallies to rebalance, not to chase. If you added hedges on the way down, this week's strength is an opportunity to assess whether your portfolio reflects your actual risk tolerance rather than just the last 72 hours of price action. The short squeeze was real, and the technical strength is legitimate. What isn't legitimate is treating a ceasefire and a week of FOMO flows as a macro all-clear.

Stay hedged, stay process-oriented, and let the market prove itself before extending risk.

Avis Leads Transportation Stocks

Avis Budget Group Inc. was up an astonishing 64% last week and a whopping 200% over the last month. A massive short squeeze is deemed the impetus behind its outsized move. Its 3.6% weighting in the transportation sector (XTN), coupled with its massive surge, helped the sector become overbought. However, the other top ten holdings are also overbought despite the negative impact that higher fuel prices will have on many of the companies. We share this in the second graphic, courtesy of SimpleVisor.

As we share in the first graphic, technology continues to move from being the most oversold sector to one of the most overbought. It certainly outperformed the market last week in the relief rally. Despite oil prices remaining stubbornly around $100 a barrel, the energy sector has fallen from extremely overbought to fair value. As we noted a week or two ago, its incredibly high absolute and relative scores (>.85) were going to be very difficult to sustain. Over the last five trading days, technology stocks rose by over 4%, while energy stocks fell by over 4%. Extreme scores using this analysis, coupled with a relief rally on the Iranian conflict, were the culprits.

Last week's price action provides guidance for which sectors might lead the way if the market continues higher. Conversely, if oil prices take another leg up, energy stocks, now at fair value, may be in a better position to lead the market once again.

S&P 500 Outlook: The 8.2% Rally & What Comes Next

Over the last few weeks, we have published real-time market commentary as the correction proceeded. The goal was to help investors navigate the more dire outcomes promoted on social media. A largely unexpected outcome was that the S&P 500 outlook changed dramatically in a matter of days. After five consecutive weeks of decline driven by the Iran conflict, surging oil prices, and a Federal Reserve frozen between inflation and growth, we suggested a rally was likely. That rally came hard with an 8.2% surge from its March lows near 6,300. Furthermore, that rally reclaimed its 20-, 50-, and 200-day moving averages in rapid succession. As of Friday’s close at 6,816.89, the S&P 500 sits just 2.6% below January’s all-time high of 7,002. That’s a recovery that demands explanation, honest evaluation, and a clear-eyed view of what comes next.

So, let’s start with a review of how we got here. In our 200-DMA breakdown analysis, we noted that the combination of a still-rising 200-day average, an RSI in the low 30s, and AAII bearish sentiment above 52% historically produces a reflexive rally, even when the longer-term outcome remains uncertain. We also wrote clearly that the goal isn’t to go to cash. It’s to reduce the cost of being wrong while staying positioned for the recovery when it arrives.

That framing matters now more than ever, because the S&P 500 outlook from here is genuinely two-sided.

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A client and friend asked us a timely question: "Why did we remove our hedge position so quickly after the ceasefire, especially with little evidence it will hold?" The simple answer is the market knows more than all of us. Market prices are based on all available information. Some of the information is widely known, while some is known only to a few investors. Regardless of what we know, think, or believe, the market knows more. The market is not always right, but given that it collectively knows more than any one of us, its price movements deserve our respect.

Think of the market as a massive, continuous poll of millions of participants, each putting real money behind their convictions. Unlike surveys, opinions, or commentaries, investing hard-earned capital has real consequences. When investors trade, they are voting with their wealth, making the market's collective signal far more powerful than anyone's analysis, no matter how well-reasoned.

This is why fighting the market is often a costly proposition. It requires not only being right at the right time, but right when the consensus is wrong. Regardless of your view, listen to the market. When prices move decisively in a direction, as they did on Wednesday, someone knows why, even if we do not.

Humility is an underrated investment discipline. The moment we believe our views outweigh the market's, we have stopped managing risk and started taking it. The market does not care what we think. Investors need experience and hard lessons to appreciate the market's voice, especially when it differs from their own opinions.

What To Watch Today

Earnings

Economy

Market Trading Update

The S&P 500 closed Friday at 6,816.89, slipping 0.11% to snap an eight-day winning streak. The week was the index’s best since November. The S&P was up roughly 3%, completing an 8.2% round-trip from the March low near 6,300. The index sits just 2.6% below January’s all-time high of 7,002, well above both the 200-DMA (~6,664) and 50-DMA (~6,559). The VIX collapsed from 31 to ~19.5, back below 20. That was the threshold we identified weeks ago as a necessary condition for a durable bottom. For the first time in this entire correction, both conditions have been met: oil has pulled back, and the VIX is below 20.

The rally, however, while powerful, was narrow. Just five stocks, AVGO, META, GOOGL, AMZN, and NVDA, accounted for roughly 45% of the S&P 500’s +760bps gain. Meanwhile, the software sector remains in a structural bear market. The IGV ETF is down ~30% YTD with names like ZS, WDAY, SNOW, and NOW all off 40%+. The “SaaSpocalypse” weighs on Nasdaq internals even as the headline reclaims key levels. The breadth test remains: 50% of constituents above the 50-DMA is the threshold for a genuine trend reversal. However, the last reading was just 27.6%.

The binary risk is clear. A Pakistan deal to reopen the Strait of Hormuz sends oil toward $80 and the S&P toward 7,000. A breakdown sends oil above $100, and the rally reverses. The market is effectively a binary bet on this weekend’s negotiations. As such, the technical picture is the best since early February. For now, both key moving averages have been reclaimed. That is the good news.

Our 200-DMA breakdown analysis from March details the outcomes of brief breaks below the key moving average. However, with 45% of the rally driven by five stocks and still depressed breadth readings, caution remains warranted. New positions are warranted on a constructive pullback to the 200-DMA (~6,664) or on a confirmed breadth expansion above 50%. For our message remains the same as last week: Cautious offense. Trade accordingly.

The Week Ahead & CPI

CPI came in slightly better than expected. Headline CPI rose by 0.9%, in line with the Wall Street consensus. Core CPI, excluding food and energy, only rose by 0.2%, slightly below expectations. The Fed will look past the high headline number as it's temporarily skewed by higher energy prices. Bear in mind that while surging energy prices push the headline number higher, weaker consumer sentiment will weigh on prices of other goods and services. At the same time, the tariff impact, which was inflationary, will now shift to a more disinflationary factor. Simply put, there are many unusual forces driving inflation that the Fed must consider.

The economic calendar is light this week, highlighted by the PPI report and the NFIB small business survey. Corporate earnings will kick into gear this week, with the banks leading off early, followed later in the week by a few larger companies like Taiwan Semiconductor, Netflix, Pepsi, Abbott, and Charles Schwab.

Oil Shock: Will The Fed Intervene Part II

The disruption is genuinely unprecedented. Roughly 20% of global oil and LNG now sit stranded behind a military blockade. Furthermore, the secondary effects on fertilizer prices, food inflation, and petrochemical supply chains are real and compounding. This is, as they say, “not nothing.” But ‘this is serious’ and ‘this is the worst crisis in anyone’s lifetime’ are two very different claims. The evidence, as we will discuss today, supports the first one far more than the second.

The catastrophist argument rests on a critical hidden assumption: that the global economy, central banks, and governments sit passively while a supply shock plays out. History doesn’t support that assumption — not once.

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Over the last few weeks, we have published real-time market commentary as the correction proceeded. The goal was to help investors navigate the more dire outcomes promoted on social media. A largely unexpected outcome was that the S&P 500 outlook changed dramatically in a matter of days. After five consecutive weeks of decline driven by the Iran conflict, surging oil prices, and a Federal Reserve frozen between inflation and growth, we suggested a rally was likely. That rally came hard with an 8.2% surge from its March lows near 6,300. Furthermore, that rally reclaimed its 20-, 50-, and 200-day moving averages in rapid succession. As of Friday's close at 6,816.89, the S&P 500 sits just 2.6% below January's all-time high of 7,002. That's a recovery that demands explanation, honest evaluation, and a clear-eyed view of what comes next.

So, let's start with a review of how we got here. In our 200-DMA breakdown analysis, we noted that the combination of a still-rising 200-day average, an RSI in the low 30s, and AAII bearish sentiment above 52% historically produces a reflexive rally, even when the longer-term outcome remains uncertain. We also wrote clearly that the goal isn't to go to cash. It's to reduce the cost of being wrong while staying positioned for the recovery when it arrives.

That framing matters now more than ever, because the S&P 500 outlook from here is genuinely two-sided.

Sentiment & Technicals Led The Way

The setup that preceded this rally was not ambiguous. Sentiment reached levels of fear historically inconsistent with continued selling pressure, as shown in the table below.

Three data points stand out. AAII bearish sentiment peaked above 52%, well past the 45% threshold we flag as a meaningful contrarian signal. The VIX hit 31, a reading that, in comparable historical setups, consistently preceded near-term reversals. Furthermore, put option volume approached record levels during the final week of the selloff. Fear of that magnitude is the fuel for a rally when markets are deeply oversold. All that is needed is a "catalyst" to ignite that fuel. That "match" came in the form of a ceasefire announcement.

The VIX collapsing back to 19.5 and crossing below the 20 level we identified weeks ago as a necessary condition for any recovery was the single most important technical event of the week. For the first time in this entire correction, both required conditions were simultaneously met: oil pulled back, and the VIX fell below 20. That combination transformed a reflexive bounce into something worth taking seriously when evaluating the S&P 500 outlook.

Most notably, we warned previously that not all 200-DMA breaks are created equal. Our prior analysis stressed the critical distinction between a rising and a declining 200-day average at the point of the break.

"The structural difference is what matters most. In every brief break, the 200-dma was still rising or flat when the price crossed below it. The long-term trend hadn’t broken as a sentiment shock had temporarily pushed the price below an intact baseline. Fear was already extreme at the moment of the break, which meant the contrarian setup was already in place. As shown, the 200-DMA is still rising, and the long-term trend remains intact."

Historical data makes the difference stark, and when the break below the 200-DMA is less than 4 weeks, as was the case with the recent reversal, forward returns improve sharply.

"The numbers from those five events stand in stark contrast to the sustained breaks. Average 12-month return: +19.8%. The 2012 fiscal cliff break recovered so fast that the market returned over 28% over the following year. The October 2023 break reclaimed the 200-dma within weeks and ran +27.0% over 12 months. Crucially, once you get past the first month, every single brief whipsaw event posted positive returns at 3, 6, 9, and 12 months. The hit rate is 100% for investors who didn’t panic-sell on those breaks. For those who did, it was among the most expensive decisions made in those market cycles."

The 2026 episode lines up with the more constructive historical analog, not the destructive one. That said, Q4 2018 and 2015 both produced sharp initial recoveries before finding a lower low, so there IS risk worth considering. Therefore, while the S&P 500 outlook remains constructive over the next 12 months, we remain tactically uncertain in the near term.

So, what is our outlook from here?

Bull Vs. Bear: Evaluating The S&P 500 Outlook From Here

While social media loves to promote the most "bearish" of possible outcomes, as investors, we need intellectual honesty to evaluate potential market outcomes. Wall Street's most prominent strategists are split in ways we haven't seen in years, not on direction, but on timing and durability. The table below frames the debate, and the analysis that follows explains why each side deserves serious weight.

The Bull Case

The bull case for the S&P 500 outlook is not a "hope" case; it is more of a base case. As noted above, when the 200-day moving average is still rising at the time of a price break, every comparable episode since 2000 has produced positive returns at the 3-, 6-, 9-, and 12-month marks. We can't ignore those statistics just because something is popular on social media. The rising 200-DMA indicates the long-term trend remains intact. The break was a sentiment event, not a structural break. And sentiment events eventually resolve.

Goldman Sachs makes this case by maintaining its 7,600-year-end S&P 500 target throughout the March correction. That target remained anchored by projected earnings of $309 per share in 2026 and $342 in 2027. Goldman's strategists describe the current phase as a "marathon broadening," a shift from narrow, mega-cap tech leadership toward cyclicals and industrials that have lagged for two years. Their argument is that 12% earnings-per-share growth creates a "fundamental floor" that limits downside even in a choppy macro environment.

"The bull market is maturing, not ending. The 7,600 year-end target for the S&P 500 is a vote of confidence in the underlying health of Corporate America. With 12% earnings growth acting as a safety net, the transition from a narrow, tech-led rally to a broad-based recovery offers a more sustainable path forward." — Goldman Sachs Equity Strategy, April 2026

The Q1 earnings reports also support the bullish case as analysts trimmed Q1 EPS estimates during the quarter. With the bar reset lower than it appears on the surface, it sets up the classic beat-and-raise scenario if corporate America can simply maintain its recent pace. FactSet projects 13.2% year-over-year earnings growth, and Barclays bumped its full-year 2026 EPS forecast to $321. In prior market cycles, that kind of low-bar, high-beat dynamic in early earnings reports has been the ignition source for the next leg higher. Add April's historically strong seasonal tailwinds, the second-best month for the S&P 500 at +1.4% on average, and the short-term setup tilts constructive.

The Bear Case

Don't worry, I didn't forget about the bear case, but that case doesn't require a catastrophe. It only requires that the current rally's foundation is narrower and more fragile than price action suggests, and the evidence for that is hard to dismiss. Roughly 45% of the 8.2% move from the lows was driven by just five stocks. Furthermore, the percentage of S&P 500 members trading above their 200-day moving average sits near 49%, recovering, but not convincingly so. In every durable market recovery since 2000, breadth expanded meaningfully within the first two weeks of the move. That hasn't happened here.

JPMorgan's Dubravko Lakos-Bujas cut his year-end S&P 500 target from 7,500 to 7,200 in mid-March, and his near-term warning is more sobering than the revised target implies. He noted that oil-equity correlations turn increasingly negative after a 30% spike in crude, precisely the level we reached during the conflict's peak. His base case sees the index potentially sliding to 6,000 to 6,200 before recovering if recession risks gain traction, with the 6,600 technical level offering only thin support. The bear case here isn't that the economy collapses, it's that the damage accumulates slowly enough that investors don't see it until earnings guidance forces the reckoning.

"Markets are underestimating the risks from the Middle East conflict, surging oil prices, and investor complacency. Investors have been mostly hedging rather than de-risking, with gross leverage still near highs. This is a high-risk assumption given that S&P 500 and oil correlations typically turn increasingly more negative after a 30% oil spike." — Dubravko Lakos-Bujas, JPMorgan Head of Global Markets Strategy, March 2026

The macro overlay compounds the concern. The Federal Reserve is effectively paralyzed. According to CME FedWatch, there is a 99.5% probability of no rate change at the April meeting, and markets have priced out cuts for most of 2026. The 10-year Treasury sits near 4.32%, and CTA positioning in Treasuries remains near maximum short. Any oil-related inflation surprise could push yields higher, tightening financial conditions at exactly the moment corporate guidance most needs a policy backstop.

Bank of America's Michael Hartnett put it plainly: He wants to see a "buyable washout" with stronger capitulation, preferring entry points below 6,600 rather than chasing the current recovery. The history of comparable setups, specifically Q4 2018 and the 2015 correction, suggests the market often finds a lower low before the durable recovery takes hold. That doesn't mean the ultimate destination changes. It means the path is rarely as clean as the initial bounce makes it appear.

"Investors should not mistake a relief rally for a resolution. The conditions for a durable bottom include breadth expansion, Fed flexibility, and evidence that earnings estimates are bottoming — not just one of those three." — RIA Advisors, April 2026.

Where We Go From Here

After weighing both sides of the debate honestly, my view is that the most probable S&P 500 outlook for the next four to six weeks is neither a straight-line continuation to all-time highs nor an immediate collapse back to the March lows. What's more likely is a period of volatile consolidation inside a well-defined range. Particularly, as the market migrates from one headline or policy-driven event to the next. Resolution will ultimately depend on a single question that only corporate earnings reports can answer:

"Are forward earnings estimates still intact, or has the macro damage from oil, tariffs, and a paralyzed Fed already started eating into the numbers that justify current valuations?"

That question matters more than it normally would as the market rally was a function of relief, not confirmation. The Iran ceasefire removed a headline risk, and the oversold sentiment condition provided the fuel. However, neither of those forces changes the underlying earnings math that ultimately determines where this market belongs. Goldman Sachs has the S&P 500 priced for $309 per share in earnings this year. If that number is right, a 7,600 year-end target is defensible. But with energy costs, tariff friction, and consumer softness already compressing margins in ways analysts haven't yet modeled, that $309 figure could start to move lower. Even with a market trading at 20x times forward earnings, there is very little cushion when the denominator falls.

The technical picture gives us the range to work with. The 200-day moving average near 6,664 is the first real line of defense on any pullback. That level was identified as critical in our initial analysis and has since been reclaimed by the market with conviction. The bullish trend line from the October 2022 lows remains the most critical support level. On the other hand, the January all-time high near 7,002 is the ceiling. Within that roughly 5% corridor, the path of least resistance depends on earnings outlooks.

That's not a hedge or a cop-out. It's the honest read of a market that is moving fast on sentiment and needs fundamental confirmation to go further.

The single most important lesson from every comparable historical episode — Q4 2018, the 2015 correction, the February 2016 lows — is that the initial reflexive rally off the oversold condition is rarely the final entry point. The market almost always gives you a second chance to add exposure at better levels. The investors who get hurt are the ones who either panicked at the bottom or chased at the top of the initial bounce. Neither extreme serves you here.

Breadth is the variable we're watching most closely. Until we see breadth break convincingly above 50% and hold there, the risk of a lower retest remains real. We must respect that in our portfolio positioning. This isn't pessimism. It's the difference between trading what's confirmed and hoping what's possible becomes real.

Investor Tactics

Translating that analysis into actual portfolio decisions requires honesty. Honesty about what we know, what we don't, and what the risk of being wrong on each side actually costs. The posture we're maintaining is what I'd call cautious offense. We are not sitting on our hands waiting for a perfect signal that never comes. But, we are also not abandoning the discipline that protected us through the correction based on a rally.

We are not chasing the rally from current levels. However, we did use the initial bounce off the lows to rebalance portfolios and add a bit of equity exposure. However, adding here, at just 2.6% below the all-time high, requires paying a premium. That's not a trade we're willing to make at scale. What we are doing is defining the entry conditions in advance. Therefore, if the market gives us the pullback that history says is likely, we know what to do.

On the existing portfolio, the priority this week is triage. Positions that didn't participate meaningfully in a near-10% rally from the lows are telling you something important. We sold those. Conversely, we added to the quality names that led the recovery. Most crucially, risk management isn't optional in this environment.

The investors who will do best from here aren't the ones who called the bottom perfectly or who faded the rally out of stubbornness. They're the ones who accepted the data as it came, adjusted their positioning without capitulating to either extreme, and stayed disciplined enough to act on confirmed signals rather than hoped-for ones. That's been our approach since the 200-DMA broke in March. It remains our approach now.

The data got us to this point. Trust the process, not the emotion, to carry you through what comes next.

The post S&P 500 Outlook: The 8.2% Rally & What Comes Next. appeared first on RIA.

🔎 At a Glance

• Q1 Earnings Season Begins: Buy Or Fade The Rally?
• Market Brief & Technical Review
• From Lance's Desk: Oil Shock: Will The Fed Intervene (Part 2) - RIA
• Market stats, screens, and risk indicators

🏛️ Market Brief - Stocks Surge On Relief

Note: I am traveling home from the UK today, so this week's missive will be short. Also, I had to write it on Friday before the U.S. markets officially closed. So, any discrepancies will be corrected next week when the full newsletter returns are returned.

Five weeks of losses, one ceasefire announcement, and the market exhaled — at least for now.

The week opened on a knife's edge. Trump's self-imposed deadline for Iran to reopen the Strait of Hormuz or face escalation kept futures volatile and conviction thin. Monday churned with no direction, the S&P closing essentially flat. Tuesday was similarly tortured. The index swung by more than 1% intraday before settling with a 0.08% gain as Pakistan urged a two-week extension.

Then came Wednesday.

Shortly before 8 p.m. Tuesday evening, President Trump posted that he had agreed to suspend attacks on Iran for two weeks. Furthermore, the US and Iran were "very far along" on a long-term peace agreement. Markets didn't wait for morning. The Dow surged 1,325 points, its best single session since April 2025. The S&P 500 popped 2.51% to 6,782.81, and the Nasdaq jumped 2.80%. Most consequentially, WTI crude collapsed 16.4%, its largest single-day drop since April 2020, settling at $94.41 per barrel. Treasury yields fell sharply, with the 10-year dropping to 4.25%, and rate-hike odds retreated

As we noted previously, the offside positioning had gotten so bearish that a short-covering rally had become very probable. This is why the "best 10-days of the markets often occur alongside the 10-worst days."

That Wednesday rally pushed the market back above the 200-day moving average. Then, on Thursday, the rally extended, with the S&P adding another 0.62% even as oil edged back above $97. That rally reclaimed the 20- and 50-day moving averages, effectively ending the correction that began in March. Of course, the ceasefire's fragility was not lost on anyone. JPMorgan's Jamie Dimon warned the conflict risks were making inflation "stickier" and rates "higher than markets expect." It is a cold reminder that even a ceasefire doesn't undo six weeks of supply-shock damage.

The inflation data confirmed that caution is warranted. Both the February core PCE and March CPI data came in at 0.4% and 0.9% month-over-month. That matched expectations but ran well above the Fed's 2% target. Critically, this data predates the full impact of the oil shock. However, given that high oil prices eventually lead to demand destruction, the Federal Reserve will likely be less concerned about short-term fluctuations in the data.

The bottom line heading into next week: the ceasefire is a necessary, not a sufficient, condition for recovery. The Strait of Hormuz must reopen, tanker traffic must normalize, and oil must hold below $100. Only then can the inflation and rate-cut story be rewritten. However, in the near term, the Q1 earnings season begins in earnest. It will be guidance, not geopolitics, that drives the next leg from here.

📈Technical Backdrop - Market Reclaims The 200-DMA

The S&P 500 closed Friday at 6,816.89, slipping 0.11% to snap an eight-day winning streak. The week was the index’s best since November. The S&P was up roughly 3%, completing an 8.2% round-trip from the March low near 6,300. The index sits just 2.6% below January’s all-time high of 7,002, well above both the 200-DMA (~6,664) and 50-DMA (~6,559). The VIX collapsed from 31 to ~19.5, back below 20. That was the threshold we identified weeks ago as a necessary condition for a durable bottom. For the first time in this entire correction, both conditions have been met: oil has pulled back, and the VIX is below 20.

The rally, however, while powerful, was narrow. Just five stocks, AVGO, META, GOOGL, AMZN, and NVDA, accounted for roughly 45% of the S&P 500’s +760bps gain. Meanwhile, the software sector remains in a structural bear market. The IGV ETF is down ~30% YTD with names like ZS, WDAY, SNOW, and NOW all off 40%+. The “SaaSpocalypse” weighs on Nasdaq internals even as the headline reclaims key levels. The breadth test remains: 50% of constituents above the 50-DMA is the threshold for a genuine trend reversal. However, the last reading was just 27.6%.

The binary risk is clear. A Pakistan deal to reopen the Strait of Hormuz sends oil toward $80 and the S&P toward 7,000. A breakdown sends oil above $100, and the rally reverses. The market is effectively a binary bet on this weekend’s negotiations. As such, the technical picture is the best since early February. For now, both key moving averages have been reclaimed. That is the good news.

Our 200-DMA breakdown analysis from March details the outcomes of brief breaks below the key moving average. However, with 45% of the rally driven by five stocks and still depressed breadth readings, caution remains warranted. New positions are warranted on a constructive pullback to the 200-DMA (~6,664) or on a confirmed breadth expansion above 50%. For our message remains the same as last week: Cautious offense. Trade accordingly.

🔑 Key Catalysts Next Week

Q1 earnings season arrives in force alongside a stacked economic calendar; this is the most dense week of crosscurrents since the March FOMC. Six of the nation's largest banks report in a three-day blitz, Netflix sets the tone for mega-cap tech, and Thursday delivers a triple-header of Retail Sales, Philly Fed, and Industrial Production that will reshape the macro narrative heading into the April 27 FOMC meeting.

Goldman Sachs and BlackRock open the season Monday morning. Goldman is the M&A bellwether. Q1 set a record for deal activity, and GS derives a higher share of revenue from investment banking than any of its major peers. BlackRock's report will be watched for AUM flows, private credit exposure (a growing risk theme), and how institutional allocators positioned through the March oil shock. Tuesday escalates with JPMorgan, the market's definitive "economy report card." Jamie Dimon's macro commentary carries as much weight as the numbers.

The trajectory of net interest income, loan loss provisions, and consumer credit quality will tell us whether the March shock left scars on Main Street. Wells Fargo is alongside for the consumer banking read. Johnson & Johnson adds the healthcare sector barometer. Wednesday brings Bank of America, Citigroup, and Morgan Stanley to round out the bank earnings wave. The collective message from six megabank reports will answer whether the"soft landing" thesis survived Q1 or whether credit stress, CRE maturities, and consumer deterioration are showing up in provisions.

On the economic side, Tuesday's March PPI is the upstream inflation signal; February ran hot at +0.7%, and feeds directly into the PCE calculation that the Fed watches. Wednesday's Beige Book provides the qualitative color from all 12 Fed districts ahead of the April 27 FOMC. But Thursday is the marquee data day: March Retail Sales will reveal whether the consumer held up amid oil at $100+ and tariff price hikes; Philly Fed is the second April factory survey, alongside Empire State from Wednesday; and Industrial Production will tell us if factory output contracted alongside the negative payrolls trend. Netflix, after the close on Thursday, will be the first mega-cap tech to report and set the sentiment template for the Big Tech earnings wave that follows.

Bottom line: Banks tell us if the financial system is absorbing the shocks. Retail Sales tell us if the consumer is. Netflix tells us if growth is. All in one week. Define your risk levels before Monday's open.

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💰 Q1 Earnings Season Begins

As a fragile ceasefire with Iran hangs in the balance and oil trades near multi-year highs, the Q1 earnings season is arriving in one of the most negatively positioned markets in years. That backdrop may be exactly the reason it's worth reconsidering the "fade the rally" stance we posited last week. For individuals who have not been in the financial markets for very long, there is an important lesson to learn.

"The markets are designed to inflict the maximum amount of pain on the maximum number of participants at any given moment."

Right now, given the numerous "Purveyors of Persistent Doom" on social media, the most crowded trade on Wall Street isn't a long position...it's fear. Furthermore, as we discussed last week, after 5 weeks of consecutive declines, the market rally this past week was not unexpected.

"Since 1965, the S&P 500 has recorded 26 separate instances of five or more consecutive weekly declines. That’s roughly once every 2.3 years, and these streaks feel catastrophic in real time. This is when investors make the most mistakes over time. The emotional stress of the decline, combined with “doomsayers,” drives investors to sell at the bottom. It is important to understand that, while these streaks feel alarming in real time, historical evidence suggests they function more as contrarian buy signals than as warnings of further collapse."

In fact, that rally was one of the strongest in nearly a year, despite the constant stream of negative headlines. The S&P 500 surged on relief that U.S.-Iran tensions had temporarily de-escalated, gaining ground and recapturing the 200-day moving average on a closing basis for the first time since the initial shock of the conflict sent it plunging through that critical floor in mid-March. That single technical event, a clean close back above the 200-DMA, changes the conversation about what comes next, especially with the Q1 earnings season now underway.

The question everyone is wrestling with is simple: do you fade this rally, or do you use it to add exposure? I've been skeptical since March, and I still have reservations. But the data is shifting, and intellectual honesty requires acknowledging that.

Three Contrarian Signals That Aren't Easy To Ignore

Let's start with sentiment. The AAII Sentiment Survey saw bearish readings spike to 52.9% at the March low, one of the highest in eight years and well above the long-term average of 31.0%. That has since pulled back to 35.5%, still above average, while bullish sentiment is at just 33.1%, below the historical norm of 37.5%. Historically, whenever the bull-bear spread reaches these levels of negative divergence, forward returns over the subsequent 12 months have been strongly positive. The market tends to move against the crowd, and right now, the crowd is still more scared than optimistic.

That negative sentiment has also manifested itself in the cash and options markets.

"We are now seeing early signs of retail capitulation across both cash and options. Last week, retail flows were net sellers across both platforms – an infrequent occurrence that has only been observed 18 times since January 2020 (most recently the week of April 7-11, 2025). Historically, forward returns following these signals have been positive on average, with performance improving over longer horizons. S&P 500 returns have been positive ~82% of the time by T+60, with average returns of +4.1%, and average positive returns of +6.9%." - Goldman Sachs

Goldman Sachs trader Shawn Tuteja recently noted that the options market's implied correlation skew has been pricing very low correlation on the call side, effectively suggesting that the right-tail risk in the S&P 500 was underpriced heading into last week. That asymmetry, excessive put protection, underpriced upside, is exactly the type of positioning squeeze that produces face-ripping rallies. We saw one last week. There may be more ahead.

The third signal is our own Money Flow Breadth Ratio, or MFBR. When the MFBR drops below 30%, our 25-year backtest identifies a genuine capitulation washout. In those circumstances, the subsequent return profile flips dramatically: a positive outcome at one month 100% of the time, positive at six months, and a 100% win rate at twelve months. We're in that zone right now. That doesn't mean pain can't persist for another few weeks, but it does mean the odds strongly favor higher prices a year from today.

The Q1 Earnings Season Could Be The Catalyst

The Q1 earnings season will begin in earnest this coming week, with the major financials reporting starting with Goldman Sachs and JPMorgan. What's important to understand is that analysts have already trimmed estimates heading into the announcements. The bottom-up Q1 EPS estimate fell 0.3% during the quarter itself, versus a historical average decline of 1.6% to 4.2% over the past five to twenty years. In other words, the bar has been reset lower than it appears on the surface, which sets up a classic beat-and-raise scenario if corporate America can simply maintain its recent pace. FactSet estimates Q1 year-over-year earnings growth at 13.2%, up from the 12.8% expectation at the start of the year, with nine of eleven sectors projected to show positive growth. Barclays recently bumped its full-year 2026 S&P 500 EPS forecast to $321, projecting 15% to 16% annual growth.

The Q1 earnings season matters even more than usual right now because it provides a factual anchor in a market driven almost entirely by headline risk. Investors need something concrete to price. Strong numbers from JPMorgan, Bank of America, Netflix, and TSMC, the first major reporters, would confirm that corporate America is absorbing the oil shock and geopolitical uncertainty better than feared. That confirmation is the trigger that shifts money from the sidelines back into equities. Think of what happened in Q1 2003. When U.S. forces entered Iraq, the S&P 500 had already sold off aggressively on the uncertainty. Once the conflict began in earnest and earnings season confirmed business resilience, the index gained more than 25% in the following six months. The Q1 earnings season was the evidence the market needed that the macro fear had been overpriced.

Will that be the case this time? I don't know for certain, but when everyone is negative about everything, the market tends to find something to latch onto.

There's a valuation argument here that also deserves attention. The forward P/E on the S&P 500 stood at 22.0x on December 31. As of today, with prices down roughly 5% from the start of the year and earnings estimates rising modestly, that multiple has compressed to 19.8x, below the five-year average of 19.9x. That's not cheap by any historical standard, but it represents a genuine reset from the stretched valuations that made us cautious in January. With the Q1 earnings season potentially delivering another round of upward revisions, valuations could look even more reasonable by the time reporting wraps up.

The Risks That Could Still Derail Everything

I want to be honest about what could go wrong, because this market isn't out of the woods. The Iran ceasefire remains fragile. We've watched this pattern before: a burst of optimism on de-escalation language, followed by a return to hostilities that sends oil back toward recent highs near $111 a barrel. Every leg higher in crude acts like a slow tax on both corporate margins and consumer purchasing power. That's a direct headwind to the earnings beat cycle we need to see from the Q1 earnings season to validate higher prices.

"Ceasefires are fragile by definition… and we’ve already seen strikes overnight across the Gulf. You can hand-wave some of that as lag effects, but the disagreement around proxies (e.g. Lebanon with Israel) leaves plenty of scope for this to break. Ultimately though, the market will judge one thing… actual flows through the Strait over time.  I struggle to see new highs for Equities, but positioning still argues for forced buying to run its course first. Europe in particular feels extended… a “fair” move might have been +2–3%, not +5%. From here, it’s all about triangulation… rates, credit, and oil. Rates matter most and are function of not just where oil goes, but where it settles. Credit will likely see aggressive covering as tail hedges decay… so less signal there in the near term. Vol compression ties it all together in determining fair spot." - Goldman Sachs

The Federal Reserve is also paralyzed in a way that markets haven't fully priced. With the CME FedWatch tool showing a 99.5% probability of no rate change at the April meeting, and zero-rate-cut expectations now extending through most of 2026, the policy backstop that investors have leaned on since 2020 isn't available. The 10-year Treasury closed near 4.36%, and CTAs have pushed their Treasury shorts to maximum levels, which in turn creates an overshoot risk that could send yields spiking further on any oil-related inflation surprise. When bonds and equities both sell off together, as we saw in March, there is nowhere to hide in a traditional portfolio.

So Is It Time To Add Exposure?

This isn't the environment to aggressively add exposure to risk. However, we can selectively add to our holdings heading into the Q1 earnings season. However, we are still maintaining a short leash in case things reverse quickly. The combination of a recaptured 200-day moving average, extreme bearish investor sentiment that has historically resolved higher, deeply depressed put-call ratios acting as coiled fuel for any upside surprise, a Q1 earnings season entering with a low bar and improving guidance, and valuations that have genuinely reset from their January extremes, that's a setup that demands action. Not reckless action. Measured action.

My recommendation is to add exposure selectively to sectors with the strongest earnings momentum: technology, financials, and healthcare, in that order. Use any geopolitical flare-up that tests the 200-DMA as a re-entry point rather than a reason to exit. If oil de-escalation holds and the Q1 earnings season delivers even close to the 13.2% growth FactSet is projecting, the path of least resistance for the second quarter is higher.

The traders who will get destroyed in this environment are the ones who fade every rally out of fear and chase every selloff into panic. The data says the extreme pessimism of March was a buying signal. The Q1 earnings season is the catalyst that will prove or disprove it.

We will continue to watch the data closely and trade accordingly.

🖊️ From Lance’s Desk

This week's #MacroView blog is part two of a two-part series on oil shocks, the economic impacts, and the Federal Reserve's response problem.

Also Posted This Week:

• The Apple AI Strategy: Discipline Over Hype - RIA - by Michael Lebowitz
• The Stock Market Rally: Buy Or Fade It? - RIA - by Lance Roberts

📹 Watch & Listen

Michael Lebowitz discusses the struggle between the stock market and oil prices as a tenuous ceasefire proceeds in the US/Iran conflict.

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📊 Market Statistics & Analysis

Weekly technical overview across key sectors, risk indicators, and market internals will return next week.

Have a great week.

Lance Roberts, CIO, RIA Advisors

The post Q1 Earnings Season: Buy Or Fade The Rally? appeared first on RIA.

On Wednesday, Delta Airlines announced it beat earnings expectations and, more importantly, its CEO maintained previous forward guidance despite the sharp increase in jet fuel prices. Delta CEO Ed Bastian cited a $2 billion quarterly fuel headwind caused by the conflict. While that added expense should weigh on earnings, Delta has a unique hedge that its competitors lack.

Delta owns Monroe Energy, a refinery it acquired in 2012. At the time, many in the media mocked Delta for buying into a business it knew nothing about. 14 years later, that bet is paying off in spades. Its refinery, located near Philadelphia, is expected to generate a $300 million benefit this quarter alone. When jet fuel prices spike, most airlines are pure price-takers, and unless they can boost ticket prices without losing sales, it hits their bottom lines. However, because of its refinery, Delta has a partial natural hedge baked into its cost structure. The refinery blunts the impact of higher fuel prices. Importantly, today, when many airlines are poorly hedged, the competitive advantage afforded to Delta pays large benefits.  

Even if oil prices collapse further and Delta’s refinery hedging benefit is not meaningful, the episode is a reminder that in commodity-exposed industries, vertical integration can be the difference between crisis and competitive advantage. The table below shows that Delta’s refinery paid large benefits to its shareholders compared to other airline shareholders.

What To Watch Today

Earnings

• No earnings releases today.

Economy

Market Trading Update

Yesterday, we discussed the market's rally back above the 200-DMA, which was accomplished in less than 4 weeks, which bodes well for returns over the next 3-6 months. Notably, next week, Wall Street heads into Q1 2026 earnings season with unusually high expectations.

The headline numbers look constructive. FactSet confirms that 59 S&P 500 companies issued positive EPS guidance for Q1 2026, the highest count in five years and well above the five-year average of 44. Revenue guidance is even more aggressive: 77 companies issued positive guidance, a record high since 2006. Analysts now expect 13.2% year-over-year average earnings growth in Q1, which, if it holds, would mark the sixth consecutive quarter of double-digit growth.

That sounds bullish. Here's the problem.

Strip the headline and the story narrows fast. Most of the upward revision to Q1 estimates since December 31 is concentrated in two sectors: Information Technology and Energy. Outside those two, only Financials has recorded any increase in dollar-level earnings at all — and that increase is 0.4%.¹ Nine of eleven sectors are essentially treading water on estimates. That's not a broad earnings recovery. That's two sectors wearing a market-wide costume.

Another positive note is that while the mainstream media has been fretting over the Iran crisis, the markets have already been repricing. Analysts have revised estimates higher through Q4 into Q1. At the same time, forward P/E ratios have fallen from near 24x earnings to 19.8, which is only slightly above the ten-year average of 18.9. It is likely that even inline estimates will be rewarded. Although forward guidance will matter significantly, as Nike (NKE) proved last week with its forward warning.

As such there are three things to watch: guidance language on the full year, whether earnings beat broaden beyond IT and Energy, and what consumer-facing companies say about household spending after months of elevated energy prices.

The Q1 number matters less than what management teams say about Q4. Pay attention to your position sizing going into next week.

Fed Minutes: Wait, Watch, And Stay Nimble

The FOMC released minutes from its March 18^th meeting. The minutes generally followed what we learned from Powell on that same day. Simply, the Fed will wait, watch, and stay nimble. The Iranian conflict is temporarily clouding the inflation picture, making it wise, in their opinion, to do nothing until they know more. As we share below, the market is betting they do not touch rates for at least the next two meetings.

On inflation, the Fed appears uncomfortable. Core PCE was running at 3.1% in January, and the surge in oil prices from the Iranian conflict pushed near-term inflation expectations sharply higher. The vast majority of participants agreed that progress toward 2% could be slower than expected and that upside inflation risks had increased. Regarding its impact on the Fed Funds rate, they note:

Some participants judged that there was a strong case for a two-sided description of the Committee's future interest rate decisions in the postmeeting statement, reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation were to remain at above-target levels.

While the inflation outlook warrants concern and hawkishness, the labor market outlook is a cause for rate cuts. Job growth remained low and concentrated in a narrow set of sectors. Several participants noted vulnerability to further softening, particularly as companies signaled hesitancy to hire amid uncertainty about AI and geopolitical stress. To wit:

Many participants cited evidence from business contacts and surveys suggesting that firms were likely to delay or reduce hiring in anticipation of AI adoption

With the cease-fire and sharp decline in oil prices, the outlook in these minutes may be outdated. Stay tuned!

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Last week, we discussed the risk of an oil shock leading to a recession. To wit:

"After more than three decades of watching oil markets upend economies, one pattern keeps repeating: investors learn the wrong lessons from the last shock. The 1973 OPEC embargo taught us that geopolitical disruptions are temporary. That lesson then got everyone killed, financially speaking, in 1979. The 2003 Iraq War produced only a mild oil bump and no recession, so traders got comfortable. Then 2008 happened. Today, with Brent crude having spiked over 60 percent since U.S. and Israeli strikes on Iran began in late February, the same dangerous reasoning is circulating again. That narrative is that this ‘event” is manageable and will resolve quickly. If that is the case, then the economy will absorb it.

That may indeed be the case. However, the conditions that determine whether an oil shock becomes a full recession are specific, quantifiable, and worth examining with clear eyes. That is what this analysis does."

That article digs into the plumbing behind oil shocks and recession, and exposes why, over the years, I've learned to distrust the loudest voices in the room. Right now, some of the most prominent macro commentators, the "Persistent Purveyors of Doom," are making a variation of the same argument: the Strait of Hormuz closure is not merely a serious risk of an oil shock and recession; it's the beginning of the end. Markets will crash within weeks. Stocking up on essentials is the rational response. The global financial system, already fragile, cannot survive what's coming.

I certainly can understand the appeal of that thesis. The disruption is genuinely unprecedented. Roughly 20% of global oil and LNG now sit stranded behind a military blockade. Furthermore, the secondary effects on fertilizer prices, food inflation, and petrochemical supply chains are real and compounding. This is, as they say, "not nothing." But 'this is serious' and 'this is the worst crisis in anyone's lifetime' are two very different claims. The evidence, as we will discuss today, supports the first one far more than the second.

The catastrophist argument rests on a critical hidden assumption: that the global economy, central banks, and governments sit passively while a supply shock plays out. History doesn't support that assumption — not once.

In 1973, the Arab oil embargo removed roughly 6% of global oil supplies from the market. Painful, yes. Civilizational collapse, no. Markets adjusted, alternative suppliers ramped up, and policymakers, however clumsily, responded. In 1990, Iraq's invasion of Kuwait spiked oil prices by nearly 80% in three months. Within six months, prices had reversed almost entirely as supply alternatives emerged and the military situation resolved. Even in 2008, when oil hit $147 per barrel, the story wasn't that oil destroyed the financial system. The financial system had already built its own bomb. Oil just lit the fuse faster.

What we're seeing today follows the same pattern. The IEA has already authorized the release of 400 million barrels from strategic reserves, the largest emergency release in history. Saudi Arabia rerouted production through the East-West pipeline to Yanbu port on the Red Sea. The U.S. military launched an active campaign to reopen the strait on March 19th. These are not the actions of a world sitting passively in the path of an unstoppable freight train. They're the messy, imperfect, and historically consistent responses of a system under stress. More crucially, it is doing what systems under stress do: adapting.

The Real Risk: The Sequencing Trap

Here's what the catastrophists get right, though it's not the story they're telling. The genuine danger isn't a sudden market collapse in three weeks. It's the sequencing trap that every major oil shock has sprung, and the Federal Reserve is already caught inside it.

Oil shocks are simultaneously inflationary and recessionary. That's what makes them so insidious and so difficult to manage. In the short run, energy prices spike, headline inflation surges, and the Fed cannot ease. But elevated energy costs act as a regressive tax on every consumer regardless of income. Disposable income gets crushed, business input costs compress margins, and hiring freezes give way to layoffs. Eventually, consumer demand collapses faster than supply adjusts, and at that point, the inflationary impulse reverses hard.

Has such a cycle occurred previously? Yes, in 1974, 1980, 1982, and in 2008, when oil at $147 in June had fallen to $32 by December. The self-limiting nature of oil shocks is one of the most reliable patterns in macroeconomic history. The inflation doesn't last. The recession that follows it does.

That's why positioning right now matters enormously. Ben Bernanke's QE doctrine worked brilliantly in 2008-09, 2011, and again in March 2020 because each episode shared a common condition: a demand-side deflationary shock. Credit froze, spending collapsed, and inflation fell. The Fed could inject liquidity without stoking inflation because there was no inflation to stoke.

A supply-side stagflationary shock inverts that logic entirely. Aggressive rate cuts into $120 oil weaken the dollar, making energy priced in dollars more expensive for U.S. consumers. QE signals panic and risks re-igniting the wage-price spiral the Fed spent 2022 and 2023 fighting to break. Arthur Burns made exactly this mistake in the 1970s, and the result wasn't stabilization. It was stagflation that took Paul Volcker and 20% interest rates to unwind. That institutional memory lives in every Fed governor's DNA right now.

To be fair, today's Fed operates from a meaningfully stronger position than Burns did. The U.S. economy is roughly 60% less energy-intensive per dollar of GDP than it was in 1973, and American shale production has transformed the country into a net energy exporter. That one fact is a structural buffer that simply didn't exist when the Arab embargo hit. Those differences reduce the severity of the transmission from high oil prices into core inflation, and they give the Fed slightly more room to maneuver before a full-blown wage-price spiral takes hold. What those differences don't change, however, is the fundamental sequencing dynamic. That is, a sustained supply shock still produces the same inflationary-then-recessionary arc, and the Fed still cannot ease aggressively until inflation visibly cracks. However, when that moment arrives, it will be with somewhat less economic damage already baked in.

Yet the Fed isn't completely paralyzed. Targeted liquidity facilities, repo operations, and coordinated dollar swap lines with the ECB and BOJ can prevent a credit market seizure without the inflationary optics of full QE.

The Fed will provide plumbing support. The only question is whether it has political cover to do more, and with oil near $120, it almost certainly does not. At least, not yet.

Three Scenarios and What They Mean for Your Portfolio

The specific outcome depends almost entirely on how long the Strait of Hormuz disruption persists. Based on what we know as of March 29 — the U.S. military campaign underway since March 19, Iran's leadership structure fractured, but mines still in the water and attacks continuing — here is how I'd assign the probabilities across the three paths. Let me walk through each in detail, including what I expect from Treasury yields, the dollar, and equities in each case.

SCENARIO ONE — 50% Probability: Resolution within six to eight weeks. This remains the base case, though it's a coin flip rather than a certainty. The U.S. military campaign, which has been underway since March 19th, is the dominant variable — Iran's strategic position is deteriorating by the week, its economy is imploding, its leadership structure is fractured, and it has no viable endgame that involves a prolonged closure. Historical precedent also favors shorter disruptions. The 50% odds reflect the fact that mine clearance and war-risk insurance reinstatement add weeks even after hostilities formally subside. A combination of diplomatic pressure, military progress, and economic pain on all sides produces a partial reopening.

• Oil retreats from the current $120 range toward $80 to $90.
• The Fed cuts two to three times in the second half of 2026, framing it as normalization rather than a crisis response.
• Treasury yields move from 4.4% to 3.8%-4.0% as recession fears moderate.
• The dollar weakens 3% to 5% on the DXY.
• Equities recover but remain 8% to 12% below pre-conflict highs through year-end as multiple compression persists.

SCENARIO TWO — 35% Probability: Disruption persists through Q3 2026. The second most likely outcome. Even a nominal ceasefire doesn't instantly reopen commercial shipping. Things such as war-risk insurance, mine sweeping, and shipper confidence all take time to restore. A grinding, partial resolution that keeps oil elevated and supply chains stressed through summer is entirely plausible, particularly if Iran's remnant forces pursue asymmetric harassment rather than formal closure. Oil stays in the $100 to $120 range for two full quarters. Demand destruction compounds into a genuine recession. Headline inflation initially stays elevated, but core starts rolling over as consumer spending collapses. By September or October, the Fed faces the sequencing trap in full: an undeniable recession, inflation reversing, and financial conditions tightening into the downturn.

• The Fed cuts aggressively, 150 to 200 basis points in rapid succession, restarting QE and framing it as financial stability support.
• The 10-year Treasury yield falls toward 3.0%-3.2%.
• The dollar surges by 5% to 8% on safe-haven demand before weakening sharply once QE restarts.
• The S&P 500 tests the 4,800 to 5,000 range, a 20% to 25% decline before the Fed backstop stabilizes sentiment.

SCENARIO THREE — 15% Probability: Extended closure triggers a credit event. This is a genuine tail risk, not a rounding error, and the 15% odds reflect that. The private credit, leveraged loan, and commercial real estate stress has been building since the 2022 rate cycle finally fully cracks under the combined weight of the energy shock and prolonged elevated rates. A major credit vehicle or institution fails. Suddenly, it's not just a recession, it's a credit seizure.

• The Fed cuts to 0% and launches a full QE program simultaneously.
• Treasury yields collapse toward 2.5% to 2.8%.
• The dollar surges 8% to 12% in the acute phase before a sustained multi-quarter reversal as the balance sheet expands.
• Equities decline more sharply as forward earnings estimates are slashed (roughly 40-50%), before recovering sharply once intervention takes hold. The S&P 500 could conceivably test the 3,800 to 4,200 range at the trough.

The Critical Takeaway For Investors: Scenario 3 has only a 15% probability but could imply a 40–50% drawdown in equities. That's an expected loss contribution too large to ignore, even in a base-case world. Therefore, we continue to maintain a defensive posture regardless of which scenario ultimately plays out.

What Investors Should Do Right Now

I have lived and worked through four major market crises in my career. Over that time, I've repeatedly watched two destructive instincts play out with near-perfect reliability. The first is panic-selling everything at the worst possible moment. The second is dismissing real risk because the sky hasn't fallen yet. Both have cost investors dearly, and neither is the right posture here.

The evidence of previous oil shocks supports a deliberate defensive shift for the time being. Increasing cash levels, holding short-duration treasuries, and reducing exposure to more globally cyclical equities. In other words, the "reflation trade" that began the year has likely come to an abrupt end. The sequencing trap is real, and the Fed will likely be slower to arrive than bulls are pricing unless the inflationary impulse reverses rapidly. However, in reality, the gap between the inflationary phase and the Fed pivot is the danger zone. That is potentially two to four quarters of deteriorating growth, declining earnings, and no central bank backstop, leaving plenty of room for portfolio damage.

Yes, the Fed will eventually ride to the rescue, and history makes that impossible to ignore. The question is always the same: how much permanent capital loss accumulates before that pivot arrives?

What is most crucial to your outcomes is not letting the "doom crowd" paralyze you. However, don't let the optimists convince you that the risks of an oil shock are already priced in. The damage in a sequencing trap happens quietly, over quarters, not in a sudden crash that gives you time to react. The time to position defensively is today, not after the recession data confirms what the oil market is already telling you.

"Defense over offense — and trade accordingly."

References

• Federal Reserve Bank of Dallas — "What the closure of the Strait of Hormuz means for the global economy," March 2026. dallasfed.org
• International Energy Agency — Emergency strategic reserve release statement, March 2026. iea.org
• Wikipedia — "Economic impact of the 2026 Iran war," updated March 29, 2026.
• Al Jazeera — "Iran's closure of the Strait of Hormuz is an international crisis," March 25, 2026.
• CNBC — "Strait of Hormuz closure: which countries will be hit the most," March 3, 2026.
• Atlantic Council — "The Strait of Hormuz crisis will ripple across plastics and food supply chains," March 2026.
• Atlas Institute for International Affairs — "The Strait that Moves the Market," March 2026.
• Ben Bernanke — "What the Fed did and why," Washington Post, November 4, 2010.
• Federal Reserve (FRED) — Historical Federal Funds Rate data. fred.stlouisfed.org
• Kpler Energy Research — Hormuz transit volumes and crude flow data, March 2026.

The post Oil Shock: Will The Fed Intervene (Part 2) appeared first on RIA.

Upon hearing of the ceasefire, oil prices plummeted by nearly 20%, and the stock market surged. In doing so, the S&P 500 broke well above resistance. Accordingly, the old resistance of the 200-day moving average (DMA) now becomes support. While no one knows whether the ceasefire will hold, the market is entering a seasonally favorable period. Further, with lower prices, especially for many of the largest-cap stocks, we suspect these companies will announce large buyback programs. The positive combination of events should be bullish. To confirm, we will want to see the moving averages that previously crossed in a bearish fashion, uncross, and for prices to start establishing higher highs. To wit, we would like to see the S&P 500 rise above the arching trend that was in place prior to the conflict.

We recently noticed a strong market parallel to the 2025 tariff-induced Liberation Day market downturn, as circled below. At that time, the market dropped through the 200 DMA and then tested it from the bottom, but failed to hold. While the recent activity looked similar, we are now decisively above the moving average and sitting at the 50 DMA (blue). The moving averages will act as support, and trapped longs will likely act as resistance. The 2025 scenario circled below is off the table for now. Obviously, the ceasefire will be fragile, so headlines will still have a big impact on prices.

What To Watch Today

Earnings

Economy

Market Trading Update

Over the last two days, we discussed that a rally-building setup was in place, and all that was needed was a catalyst. As mentioned above, that actually came yesterday. But there is more to this analysis.

Three weeks ago, the S&P 500 broke its 200-day moving average at 6,644. That breach, on March 19, triggered a swift continuation lower as the index dropped into the low 6,300s before buyers stepped in. Yesterday's close sat at 6,617, still a handful of points below the 200-DMA. Then this morning, the ceasefire announcement changed the math entirely.

The opening gap carried the index cleanly through the 200-DMA. That's the good news. The complication arrived almost immediately as the rally ran straight into the 50-day moving average at 6,784 and stalled. That's not surprising. The 50-DMA has been declining since February, and overhead resistance from a falling moving average doesn't evaporate on a single day's news. The market is now sandwiched between two key levels: 6,644 to the downside and 6,784 to the upside. How it resolves that range in the coming sessions tells you a great deal about whether this is a durable recovery or a relief rally that fades.

There's reason for measured optimism. The selloff from March 19 into the lows wasn't a calm, orderly decline. Put option volume approached record territory, VIX spiked hard, and breadth collapsed to levels last seen in late 2022. That kind of fear doesn't just evaporate; it creates fuel. Deeply oversold markets that reverse on a catalyst tend to follow through, particularly when the catalyst is credible enough to shift institutional positioning.

Earnings season adds another layer. Q1 reports start landing this week, and expectations were cut aggressively enough during the selloff that "better than feared" is a realistic bar for a broad swath of S&P 500 companies. Modest beats matter here because they tend to accelerate the execution of share buybacks. Companies sitting on authorized repurchase programs often step in after sharp drawdowns: management sees the stock as cheap, the board has already approved the authorization, and buybacks become mechanical, underpinning the rally regardless of the next headline.

The two-level framework is the right lens for investors right now. Use pullbacks toward the 200-DMA at 6,644 to add exposure; that's your line in the sand. The next bull objective is a clean weekly close above the 50-DMA at 6,784. Until that happens, size your positions accordingly. The ceasefire gave the market a catalyst. Earnings season gives it a second one. Neither guarantees a straight line higher, but the setup is better than it looks on the surface.

Oils Plunge Feeds Fed Funds Trades

Crude oil prices collapsed by more than 15% on the ceasefire agreement, one of its sharpest single-session drops in years. Assuming the Strait of Hormuz is open, the supply shock will lessen dramatically. From the Fed's view, rising energy prices were causing angst. Weakening labor market data, coupled with inflationary high oil prices, essentially put monetary policy in a wait-and-see mode, from what was likely a cut or two by year's end.

Energy is both a direct input into CPI and a psychological anchor for consumer expectations. With crude prices retreating, the disinflationary impulse could show up in data within weeks. Following the ceasefire, Fed funds futures, as shown below, now price in a 27% probability of a rate cut by December, a decent shift from zero expectations just 24 hours ago.

For now, the bond market is treating the ceasefire as a green light — and the energy-to-rate-cut pipeline is the trade to watch for both bonds and stocks.

The Apple AI Strategy: Discipline Over Hype

While tech giants invest billions in AI, Apple executives are quietly sitting on their hands and a mountain of cash. Given the massive growth in AI investments, as shown in the graphs below, executives of leading companies at the forefront of AI development must be ecstatic about the prospect of AI significantly boosting their bottom lines. The puzzling question, however, is why Apple isn’t following suit. Or could they be taking a different approach to winning the AI arms race?

READ MORE...

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While tech giants invest billions in AI, Apple executives are quietly sitting on their hands and a mountain of cash. Given the massive growth in AI investments, as shown in the graphs below, executives of leading companies at the forefront of AI development must be ecstatic about the prospect of AI significantly boosting their bottom lines. The puzzling question, however, is why Apple isn't following suit. Or could they be taking a different approach to winning the AI arms race?

Apple Avoids The AI Spending Boom

Apple is one of the world’s most profitable companies. Over the last four quarters, they reported over $400 billion in annual revenue and nearly $100 billion of free cash flow. Furthermore, the company holds $65 billion in cash and cash equivalents and $77 billion in marketable securities.  The bottom line is that Apple can easily self-fund AI innovation on a massive scale, as its competitors are doing. Yet it hasn’t.

Rather than mimicking its peers, Apple appears content to let the AI landscape mature before committing significant capital. Restraint may seem like complacency or even negligence. However, Apple has a long and extremely successful history of deploying capital at the right time; when the profit outlook is clear, the technology is established, and the customer value proposition is well-defined.

This approach may be frustrating for Apple shareholders in the short term, but history and the chart below, comparing Apple to the S&P 500, suggest it has served them extremely well.

Apple’s Historical Playbook

Apple has rarely been first to introduce a new product. It was not the first personal computer company, the first smartphone maker, or the first to launch wireless earbuds, smartwatches, or VR headsets. In nearly every case, Apple waited while other companies experimented and helped define the product and the market.

Apple waited to understand what consumers wanted in a product.  Only after the uses of a new product became obvious and consumer demand was proven did Apple step in with well-designed products that emphasized reliability, usability, and profitability. Their goal has always been not to be the biggest producer of a product but to be the best. In most cases, they have lived up to that lofty goal.

The timeline below shows the various smartphones that preceded Apple’s iPhone. Given the smartphone landscape today and the fate of the products that preceded the iPhone, it's fair to say that Apple’s patience was well rewarded.

Discipline May Win The AI Game

Today’s generative AI ecosystem is still in its experimental phase. Training costs are enormous, inference costs remain high, and business models are largely unproven. Many AI products may be impressive, but have produced limited revenue.

Instead of competing with the likes of Microsoft, Meta, and Google, Apple appears to be integrating AI incrementally. They are embedding AI into existing hardware, operating systems, and services rather than creating standalone, capital-intensive platforms. This allows its products to stay competitive without fundamentally altering its cost structure.

This approach takes Apple out of the AI limelight, which has at times weighed on the stock price.

Waiting For Clarity

There are good reasons to wait for AI to better define itself before Apple spends hundreds of billions on strategies that may not prove profitable. For example:

• Monetization: While AI can clearly improve productivity and user engagement, it remains unclear how much consumers are willing to pay for it directly.
• Legal/regulatory: Data privacy, intellectual property disputes, model accountability, and regulatory limitations are evolving areas of law and public policy. Apple, whose brand is closely tied to trust and privacy, could lose more than most companies from missteps in these areas.
• Capital flexibility: By not locking itself into massive investments today, Apple retains the capital flexibility to invest rapidly once AI technology better defines itself and the economics become more apparent.

The Long View

For the impatient investor or trader, Apple’s approach probably feels underwhelming, especially amongst the daily headlines proclaiming AI innovation and trillion-dollar opportunities. But, for investors with patience, history suggests that Apple’s greatest successes have come not from being first, but from entering markets when technology, consumer readiness, and profitability align.

In our article, AI Bubble: History Says Caution Is Warranted, we discussed how many game-changing innovations, such as AI, are often accompanied by a financial bubble. Furthermore, for understanding Apple's AI strategy, it has historically been far from certain that the front-runners, initially touted as the biggest beneficiaries of the innovation, will be the long-term winners.  To wit:

In 1999, few, if any, investors had ever heard of Google. The term for an internet search, “Googling,” was not yet a thing. Today, Google has a 90+% share of the search engine volume, and many of its early competitors no longer exist. 

Might Apple be taking a page out of Google’s playbook and waiting in the weeds for the AI industry to mature?

Might Apple be the next Google?

Summary

In the early stages of a technology buildout, infrastructure tends to capture the most value. This time appears similar, with the chipmaker Nvidia posting extraordinary returns and investors fawning over the big data center players like Microsoft, Amazon, Meta, and Google. However, over time, value typically migrates toward the technology's application. Understanding where we are in that migration from infrastructure to application is important.

In our opening section, we asked if Apple executives share the same enthusiasm for AI as their chief competitors. The answer may be that Apple executives understand something their peers do not; the race rarely goes to whoever is first out of the gate.

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Berkshire Hathaway now sits on $373 billion in Cash. They have enough to buy 480 companies in the S&P 500. For context, this is the largest cash stockpile since 2008. At that time, Berkshire used its cash not to buy stocks on the open market but largely to offer companies private deals that ordinary investors couldn't access. In doing so, they extracted extremely favorable terms from desperate companies in exchange for providing much-needed capital and Berkshire's confidence stamp of approval to soothe anxious investors.

The most notable trades included:

Goldman Sachs (September 2008): Berkshire invested $5 billion in Goldman preferred shares paying a 10% annual dividend, plus warrants to buy $5 billion in common stock at $115 per share. Goldman eventually paid Berkshire roughly $500 million to redeem the preferred shares early.

General Electric (October 2008): This was nearly identical to the structure Berkshire had with Goldman: $3 billion in preferred shares with a 10% dividend, plus warrants. GE was widely seen as teetering at the time, and Berkshire's investment served as a powerful signal of public confidence.

Wrigley/Mars (2008): Berkshire provided $6.5 billion in financing to help Mars acquire Wrigley, earning a high fixed return with minimal equity risk.

This raises the question: if, as an investor, you want to raise cash to reduce risk, might you be better served by buying Berkshire Hathaway shares and participating in its deal-making if the markets enter crisis mode?

What To Watch Today

Earnings

Economy

Market Trading Update

Yesterday, we discussed a couple of reasons why the market could rally even as the financial media has been working overtime to convince investors that the sky is falling. Iran tensions, tariff escalation, recession fears, and misguided narratives of "stagflation," even though the US economy is nowhere near meeting that definition. However, the narrative is as dark as it gets, which is great for clicks and views. But here is the truth: markets don't bottom on good news. They bottom when fear is so thick you can taste it, and right now, the data suggests we're getting close to that point.

Start with put volume. As the first chart shows, SPY put volume recently hit its third-highest level on record, going back to 2022. That's not a bearish signal; it's a contrarian one. The prior spikes in put volume circled on that chart all coincided with significant market lows, not tops. When everyone is buying protection at the same time, it typically means the worst is already priced in. Panic is a leading indicator of relief rallies, not continued declines.

Then there's the earnings picture, where the Iran risk argument gets interesting. The FactSet data in the second chart shows that 59 S&P 500 companies issued positive EPS guidance in Q1 2026, the highest count in five years. Analysts have been revising numbers higher, not lower. That doesn't scream recession.

And the third chart from Datastream drives the point home — U.S. IT sector forward EPS growth has gone parabolic, with broad S&P 500 forward earnings still solidly positive year over year.

So here's the disconnect worth watching. Valuations have compressed sharply over the past several weeks. If earnings estimates are holding and forward EPS is still rising, then the market is simply cheaper today than it was in February. Iran is a real geopolitical risk, but risk assets often price geopolitical shocks faster than the headlines suggest. By the time CNN is running wall-to-wall coverage, the institutional bid is frequently already forming beneath the surface.

None of this is a guarantee. Which is why we added to our near term market hedges. But the point is that markets can and do overshoot to the downside. But the combination of extreme put hedging, resilient forward earnings, and compressed valuations sets up a better risk-reward than the current headlines imply.

Trade accordingly.

Earnings Forecasts Create A High Bar

Despite the conflict in Iran, Wall Street analysts have been raising their earnings forecasts for the rest of the year in recent weeks. As the graph below shows, courtesy of Ed Yardeni, Wall Street expects >20% year-over-year growth in the fourth quarter. Again, earnings expectations are rising despite higher oil prices and the potential negative impacts on consumer and business sentiment. It's also worth considering that only two sectors, technology and energy, are driving the increased expectations. Consider the following statement from FactSet:

Outside of the Information Technology and Energy sectors, the only other sector that has recorded an increase in dollar-level earnings since December 31 is the Financials sector (+0.4%).

Three thoughts:

• Given that only two sectors are driving the higher expectations, higher earnings forecasts do not signal a broad-based economic resurgence as some believe.
• The market will likely pay more attention than usual to the upcoming guidance in Q1 earnings reports to better forecast earnings. Poor guidance, as we saw from Nike last week, could weigh heavily on stocks.
• Stock prices will want earnings to beat expectations to push the market higher. Thus, even if earnings meet the bold expectations, it may not be enough to satisfy investors.

Coffee Drinkers Might Rejoice

The graph below, courtesy of Sentimentrader, may foretell lower coffee prices at your favorite diner over the next year. The top graph below shows the price of coffee. The red dots highlight periods when the 150-period moving average of their proprietary Optix-sentiment index (green line) reached 65 or higher and then retreated below 65. Optix is based on a scale of 0 to 100 and uses factors such as options data, futures positioning, and volatility indicators. The tables below the graphs backtest the dotted periods and find that, on average, coffee declines by about 25% after meeting their 65-optimism rule.

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While Investors remain fixated on the Iranian conflict and the extreme volatility of oil prices, a historic wave of AI-driven IPOs is quietly building in the background. When the geopolitical fog clears, AI-related IPOs may become an important market narrative for the remainder of the year.

As an appetizer, Anthropic, the Claude maker founded by former OpenAI researchers, is targeting an IPO in the fourth quarter of 2026. While still early, the company is expected to raise more than $60 billion at a valuation between $400 and $500 billion. Such a valuation would rank it as the second-largest venture-backed IPO in history. The company most recently closed a $30 billion funding round at a $380 billion valuation in February 2026, backed heavily by Alphabet and Amazon.

The main course offering will likely be Elon Musk's SpaceX. SpaceX filed confidentially with the SEC on April 1st, targeting a June listing at a valuation that could exceed $1.75 trillion. As the graphic below shows, Polymarket bettors assign a 27% chance that it eclipses $2 trillion, making it the 6th-largest publicly traded company in America. Needless to say, but it would shatter every public market record. The valuation is bolstered by the recent merger of SpaceX and xAI, creating what Musk described as:

the most ambitious, vertically-integrated innovation engine on and off Earth

For investors, the question isn't whether this IPO will be historic; it will be. The question is whether the AI premium baked into the valuation is earned or aspirational.

What To Watch Today

Earnings

• No notable earnings releases as of today

Economy

Market Trading Update

Yesterday, we discussed the technical backdrop of the market. Furthermore, on Monday, we discussed why investors should consider fading this rally. That is still likely a prudent course of action, but we should also consider the possibility of a different outcome.

Over the last few weeks, the selloff has been an exhausting grind lower, and the headlines have been brutal. But markets don't always wait for the all-clear signal before turning higher, and right now, enough catalysts are building beneath the surface to suggest the worst of this decline may be closer to over than most investors think.

The most immediate one is earnings season. Q1 reporting kicks off in earnest this week, with the big banks leading the way. Whatever the macro backdrop, corporate results have a way of cutting through the noise. If companies come in with solid numbers and, more importantly, don't gut their forward guidance, the market will have something concrete to buy against. Investors are already positioned defensively. It doesn't take much good news to move a market that's coiled that tight.

Share buyback authorizations are also quietly building. Several large cap companies that suspended repurchase activity during the February volatility are now working through board approvals to restart programs. That matters because buybacks function as a mechanical floor. Companies don't announce $5 billion repurchase programs and then sit on their hands while their own stock trades at a discount. That demand shows up in the tape, and it tends to show up consistently.

Beyond those two factors, sentiment and positioning themselves argue for a bounce. The AAII bull-bear spread has collapsed to levels last seen during the 2022 trough. Put-to-call ratios have surged. Retail and institutional investors alike have been reducing equity exposure for weeks. When everyone who wants to sell has already sold, which means you don't need good news to stabilize prices, you just need the bad news to stop getting worse.

Iran remains an overhang, and I'm not dismissing it. A genuine escalation could reset this entire picture in a session. But geopolitical shocks that don't produce a direct economic rupture, think supply chain disruption rather than full-scale regional war, historically resolve faster than the market prices at the moment of peak fear. Furthermore, markets have already been pricing in the expected impact of the current conflict by resetting valuations. We're not calling the bottom here. What we're saying is that the setup for a meaningful relief rally is forming, and investors who are waiting for certainty before acting will miss most of it.

Pay attention.

Energy vs. Technology

Over the past month, the energy sector has been grossly overbought while technology has been among the most oversold sectors. Last week, the tide turned. As we share below, courtesy of SimpleVisor, energy (XLE) saw its absolute and relative scores move from extremely overbought (the upper-right corner) toward fair value. At the same time, technology (XLK) moved from the bottom left corner to a very slightly overbought level.

The question is whether this shift is durable or just a short break from the value-growth trend, which has weighed on large-cap technology since November. Answering the question is extremely difficult amid the barrage of Iran and oil headlines, which are heavily impacting the market. That said, when volatility no longer thrives on Iran and oil prices, that question will become more important for investors.

The Stock Market Rally: Buy It Or Fade It?

Last week, the stock market rally was one of the best performances in nearly a year. The S&P 500 surged 3.4%, the Nasdaq climbed 4.4%, and the bulls declared the correction over. As I have stated before, having watched markets for more than 35 years, I have come to recognize the difference between a relief rally and the end of a corrective cycle. So far, this remains a relief rally until overhead resistance is broken through and successfully retested. The question that matters now is whether the stock market rally has the institutional support to break through those resistance levels, or whether Monday’s open will reveal the reversal was already finished before most investors realized it started.

The answer, based on every technical and macro lens I use, points heavily toward the latter.

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As sentiment shifts from a Fed rate-cutting forecast to one that now sees a chance of a rate increase, a potentially powerful short squeeze setup might be emerging in the Treasury market. Heading into the Iran conflict, speculative short positions in TLT and Treasury futures were near historically elevated levels, reflecting a broad consensus that yields would increase. Then the conflict broke out, and oil prices surged. Rather than following the traditional flight-to-safety script of falling yields and rising bond prices, yields increased as inflation fears took hold in the bond market.

Higher yields, including nearly 5% on 30-year bonds, could set up a bond short squeeze. When or if higher oil prices lead to economic weakness, or if the Iran conflict de-escalates faster than expected, the Fed could quickly shift back toward a dovish stance more aggressively than the market anticipates. Further, the unwinding of the oil premium, combined with weaker economic growth and buying by yield seekers, could force a rapid unwinding of elevated short positions and drive a short-squeeze rally in Treasury prices. Investors who have been shorting bonds for the past month have been rewarded, but the bigger the short base, the more likely a meaningful reversal.

As we wrote in last week's Commentary, the Donald Kohn framework suggests that rate cuts are more appropriate than rate hikes in the context of a supply-driven oil shock. If the Fed and the market come around to that perspective, a bond market short squeeze may catch many investors by surprise.

What To Watch Today

Earnings

• No earnings releases today

Economy

Market Trading Update

The S&P 500 closed Thursday at 6,566 ahead of the Good Friday holiday, snapping a brutal five-week losing streak with a gain of roughly 3% on the week. Tuesday’s +2.9% surge—the best session since May—was ignited by reports that Iran’s President is open to ending the war, combined with Trump’s announcement of “productive talks.” March still ended down over 5%, but the bounce off 6,300 produced a 4.2% rally from trough to Thursday’s close. The question heading into Q2 is whether this bounce has legs or is simply another dead-cat rally in a larger corrective phase.

As shown, the current rally is pushing into resistance at the 20-day moving average, which has crossed below the 200-day moving average. Notably, momentum has triggered a short-term buy signal, and relative strength is improving from very oversold levels. However, the big question is whether investors can retake the current resistance levels and push markets higher into next week, but the data suggests caution.

The internals tell us this bounce is real but fragile. As of Wednesday’s close, only 27.6% of S&P 500 constituents traded above their 50-day moving average, a percentile reading of just 12, meaning breadth has been this weak only 12% of the time. That is an extraordinarily narrow rally. Meanwhile, 49.2% remain above their 200-DMA (25th percentile), below average but notably above the sub-30% washout levels of the 2022 bear market. The RSI has recovered to 45.7 from the oversold low-30s in late March, and the McClellan Oscillator has turned positive after deeply negative readings. Both are constructive, but the percentage of stocks above the 50-DMA needs to expand well above 50% before we can call this anything more than a "reflexive bounce within a downtrend."

So, is the market oversold enough for a sustained move higher? The short answer: the conditions are present for a tradeable rally, not a durable bottom. Seasonality helps as April is historically the second-best month for the S&P 500 (+1.4% avg per the Stock Trader’s Almanac), and earnings season kicks off with FactSet consensus at 13% YoY EPS growth. However, the macro overlay remains hostile: Brent near $117, the Fed has priced out cuts entirely (Macquarie expects a hike in 1H27, and the 10-year yield sits near 4.45%. The index closed Thursday still 1.2% below its 200-DMA (~6,642), and until price reclaims that level, the primary trend remains down. Investors who missed the bounce should not chase here.

Bottom line: If you are fully invested, this bounce is an opportunity to add hedges, not remove them. Consider put spreads on SPY or collar strategies on concentrated positions. If you’ve been building the shopping list we recommended, this isn’t the entry; that was the 6,300 level two weeks ago. The next entry comes on either a successful retest of March lows or a decisive close above the 200-DMA with breadth confirmation (50-DMA participation above 50%). Warren Buffett said it best Tuesday: he’d buy more Apple, “but not in this market.”

We agree. Defense over offense. Trade accordingly.

The Week Ahead

In the prelude week to corporate earnings, there will be a decent amount of data to digest. The likely headliners will be CPI on Friday and PCE on Thursday. Bear in mind, PCE covers the February time frame, so it will not include the impact of higher oil prices. CPI is expected to rise by 0.8% in March; however, Core CPI is expected to rise by only 0.2%. Thus, higher energy prices will exert themselves in this report. As we have discussed, the Fed primarily focuses on Core inflation; thus, the potentially high headline CPI should not be a surprise to the stock or bond markets. Further, higher yields and lower stock prices already reflect the increase in oil prices.

The FOMC minutes on Wednesday may shed some light on how the Fed balances the inflationary impact of the Iranian conflict with the negative effect on the economy. The market will focus on how they speak to both risks and the balance of those conversations. Currently, as shown below, the market is pricing in a mere 3bps of rate cuts through November.

Oil Shocks & Recessionary Outcomes

After more than three decades of watching oil markets upend economies, one pattern keeps repeating: investors learn the wrong lessons from the last shock. The 1973 OPEC embargo taught us that geopolitical disruptions are temporary. That lesson then got everyone killed, financially speaking, in 1979. The 2003 Iraq War produced only a mild oil bump and no recession, so traders got comfortable. Then 2008 happened. Today, with Brent crude having spiked over 60% since U.S. and Israeli strikes on Iran began in late February, the same dangerous reasoning is circulating again. That narrative is that this “event” is manageable and will resolve quickly. If that is the case, then the economy will absorb it.

That may indeed be the case. However, the conditions that determine whether an oil shock becomes a full recession are specific, quantifiable, and worth examining with clear eyes. That is what this analysis does.

READ MORE...

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Last week, the stock market rally was one of the best performances in nearly a year. The S&P 500 surged 3.4%, the Nasdaq climbed 4.4%, and the bulls declared the correction over. As I have stated before, having watched markets for more than 35 years, I have come to recognize the difference between a relief rally and the end of a corrective cycle. So far, this remains a relief rally until overhead resistance is broken through and successfully retested. The question that matters now is whether the stock market rally has the institutional support to break through those resistance levels, or whether Monday’s open will reveal the reversal was already finished before most investors realized it started.

The answer, based on every technical and macro lens I use, points heavily toward the latter.

Let's Review The Tape

The S&P 500 closed at 6,582, bouncing roughly 4.5% off the late-March lows near 6,300. That sounds constructive until you examine what those price levels represent. The index pushed directly into its 200-day moving average near 6,642 and remains comfortably below the 50-day moving average near 6,789. The 20-DMA trends around 6,607. Together, those three levels form an overhead cluster of resistance that has historically acted as a gravitational ceiling for stocks in corrective environments. Furthermore, the volume profile we analyzed on Wednesday confirmed the same. Many investors are trapped at those prices, holding positions at a loss and waiting for any rally to exit at break-even, which adds to the risk of a relief rally failure.

Then came Thursday’s escalation, following President Trump’s prime-time address, which offered no clear path toward ending the conflict or reopening the Strait of Hormuz. Unsurprisingly, oil responded immediately. WTI crude surged to $111.54 per barrel on settlement Thursday, the highest close since June 2022. Equity futures reversed what the bulls had built over two sessions, trading sharply lower Thursday morning before recovering to a small gain by the close. The only thing that likely helped the market end on a good note was that markets were closed for Good Friday. With the jobs report posting a gain of 178,000 on Friday, the market would likely have sold off on the expectation that the Federal Reserve is now fully trapped in terms of monetary policy.

With that said, we need to focus on what the market is telling us, which is where the MFBR index comes in.

Why You Should Listen To The MFBR Index

Our Money Flow Breadth Ratio, a rules-based institutional flow indicator we’ve backtested across 1,351 weekly observations from 2000 through 2025, currently stands at 35% and is declining.

That places it squarely in the single worst sub-range within SELL territory, and historically suggests a higher degree of caution. The MFBR works by tracking weekly net dollar money flow in the S&P 500 index, counting the number of the last 20 weeks that showed positive institutional buying, and converting that count into a ratio. Readings above 60% signal sustained buying pressure, whereas readings below 40% signal sustained selling pressure. Notably, the model goes a step further and also incorporates the direction of the MFBR, whether it is rising or falling. This is because a 25-year backtest from 2000 to 2025 demonstrated that trajectory matters as much as level, particularly in transition zones.

At 35% and declining, the data is unambiguous about what history suggests will happen next. Across 73 observations in the 35–40% zone, average forward returns were negative at one month (−1.1%), three months (−1.2%), and six months (−0.3%). The six-month win rate was just 34.7%, meaning the market was lower six months later nearly two out of every three times. The twelve-month win rate recovered to 58.6%, but that is still well below the all-period baseline of 75.7%. The backtest’s range of outcomes, from a best-case of +66.6% to a worst-case of −29.1% over 12 months, underscores why maximum defensiveness is the appropriate posture right now.

Bottom line: Until the MFBR stabilizes and recovers sustainably above 50%, patience over aggression and capital preservation over return-chasing are the rules. The one exception: if the MFBR drops below 30%, historical data shows a genuine contrarian buy signal with a 100% win rate at twelve months. We are not there yet.

That is just the technical data; other factors are at play that may also have an impact.

Other Risks: Oil, Interest Rates & The Fed's Dilemma

The macro backdrop has rarely been this unfavorable for equities simultaneously across so many dimensions. Oil is the primary driver right now, with Brent crude oil spot price rising sharply following the onset of military action in the Middle East. With petroleum shipments through the Strait of Hormuz being disrupted and significant Middle East production shut in, recession risks are rising. The longer the situation persists, the greater the risk that the oil impulse translates into broader inflationary pressures. (As shown, there is a decent correlation between oil prices and CPI.)

That puts the Federal Reserve in a genuinely impossible position. It is also one that should concern every equity investor far more than the day-to-day volatility. Markets are now pricing zero-rate cuts for the remainder of 2026. The 10-year Treasury yield closed at 4.31%, while the 30-year yield was 4.88%. Fed Chair Powell has explicitly acknowledged the tension.

"Inflation remains above target, the labor market is softening, and the conflict has introduced significant uncertainty into every forecasting model the FOMC relies on."

This is the risk where energy-driven inflation squeezes real purchasing power while employment deteriorates. The Fed cannot cut without inflaming inflation expectations, and it cannot raise rates without breaking an already-fragile labor market. The result is paralysis at exactly the moment markets need a clear policy anchor.

The jobs report adds another layer of complexity. March’s nonfarm payrolls print came in at +178,000. That was much stronger than the 60,000 estimates, and the unemployment rate dropped to 4.3%. With the market closed on Friday, the reaction will be delayed until Monday's opening.

Furthermore, last week’s stock market rally was not broad, which matters far more than the headline index gain suggests. As of April 2, just 27.6% of S&P 500 constituents were trading above their 50-day moving averages. That is up from below 20% at the March low, but down ~70% during the broad-based advance earlier this year. The percentage of S&P 500 stocks above their 200-day moving average sits below 50%. These types of reading are more akin to corrections and bear markets than bull markets.

There are positives to consider. Relative strength (RSI) on the S&P 500 recovered from deeply oversold levels near 30 in late March to approximately 45. That is encouraging from a mean-reversion perspective; however, it is still below the neutral 50 level. The VIX is holding near 28, confirming that institutional hedging demand remains elevated. When professionals are still buying protection at these levels, they are telling you something about their conviction in the rally. Momentum, as measured by the MACD indicator, remains in negative territory. but did trigger a short-term buy signal. However, these momentum conditions are consistent with what we’ve seen historically in corrective environments. Short-covering bounces tend to fade back into the primary downtrend.

April seasonality deserves acknowledgment. Historically, April has been one of the stronger months for equities. But that historical average includes far calmer geopolitical and macroeconomic backdrops than today’s. A seasonal tailwind is a weak force compared to oil at $111, a frozen Fed, and a still weak labor market that hasn't fully felt the oil price spike. Furthermore, the MFBR data also points to sustained institutional selling pressure.

So, while there are certainly reasons to be bullish, there is risk in that view.

Where The Bullish Case Potentially Fails

I take the bull case seriously because good analysis requires it, and there are genuine counterarguments worth acknowledging.

• First, the MFBR’s own 25-year backtest shows that when the ratio drops below 30%, a true capitulation washout has occurred. The subsequent returns flip dramatically positive: +5.1% at one month, +7.8% at six months, and a 100% win rate at twelve months. We’re not there yet, but that threshold isn’t far from the current 35% reading.
• Second, the volume profile below 6,300 thins out considerably. The lack of sellers could allow prices to squeeze back toward the resistance without much friction if buyers step in.
• Third, the first-quarter earnings season begins next week. FactSet currently projects roughly 13% S&P 500 earnings growth. If that number is confirmed by actual results, it could provide the fundamental catalyst bulls need.

The problem is that none of those factors changes the immediate risk-reward math. The 200-DMA remains resistant on a closing basis, despite last week's stock market rally. Breadth has not recovered. Institutional money flow is in sell territory and falling. Oil is near a multi-year high with no clear resolution in sight. And the biggest monthly economic data release of April dropped on a closed market, deferring the full reaction to Monday. At the current MFBR reading, the historical six-month win rate is 34.7%. That reading indicates that selling near this resistance remains the correct trade in roughly 2 out of 3 comparable setups.

For now, the burden of proof is on the bulls, and last week’s rally has not yet met it.

As such, following last week's stock market rally, here are seven actions to consider when trading begins on Monday.

The summer sets up as one of the more difficult stretches for equities in recent memory. Oil above $100 for any sustained period has historically pressured both consumer spending and corporate margins simultaneously. The Fed will unlikely be able to provide a rate-cutting tailwind that markets previously relied on. Finally, the labor market, which was already softening before this conflict began, is now doing so with the added headwind of energy-driven inflation. None of that means a market crash is inevitable. However, it does mean that the risk-reward profile of being aggressively long equities at current levels is poor, and that patience, at least for now, is its own form of return.

Defense over offense. Trade accordingly.

The post The Stock Market Rally: Buy Or Fade It? appeared first on RIA.

🔎 At a Glance

• Consecutive Weekly Declines & Fading Rallies For Now
• Market Brief & Technical Review
• From Lance's Desk: Oil Shocks & Recessionary Outcomes - RIA
• Market stats, screens, and risk indicators

🏛️ Market Brief - Market Rebounds On Resolution Hopes

March closed as the worst quarter for the S&P 500 since 2022, with the index down roughly 7% on the quarter and every member of the Magnificent Seven finishing in the red. This past holiday-shortened trading week saw a sharp reflexive relief rally from the oversold conditions we discussed last week.

Monday opened with oil above $100 a barrel and sentiment fragile following the prior week's correction-level losses. Markets churned with no conviction. Then, on Tuesday, reports surfaced that Iranian President Pezeshkian was open to ending the war, and markets exploded. The S&P surged 2.91%, the Dow added 1,125 points, and the Nasdaq rocketed 3.83%, its best single session since May. However, as we have noted previously, the "best trading days" tend to occur in the midst of the worst of times. Nonetheless, it was a legitimate relief rally, and for a day, it felt like the fog was lifting.

However, optimism was tempered on Wednesday, with the ADP employment topping expectations at 62,000 and retail sales surging by 0.6%. That news started the day out strong, but stronger data was overshadowed by inflationary pressures. President Trump's prime-time address further reset the tone as he confirmed ceasefire talks were underway but said U.S. forces would "hit Iran hard" and send them "to the stone age" before withdrawing in two to three weeks. That wasn't what markets were hoping for, and oil reversed from sub-$100 levels back toward $106 in overnight trading. With that, the markets opened lower on Thursday morning, wiping out the lion's share of Wednesday's gains, before rebounding to near breakeven on reports of Iran-Oman coordination to reopen the Hormuz Strait.

With the market closed for Good Friday, traders were left to stew over the weekend with the conflict still unresolved and a critical deadline looming. Nonetheless, as we will discuss below, the reflexive rally this week was not unexpected after 5-consecutive weeks of decline. With the markets decently oversold and clamoring for any piece of positive news to trade higher, the rally was not unexpected. However, we continue to suggest that investors remain cautious until the market rises above the 200-day moving average.

The one silver lining is valuation. As Morgan Stanley noted this past week, the S&P now trades roughly 17% cheaper than pre-war levels on forward earnings. That is approaching ranges historically associated with correction endings, provided the economy avoids recession, and the Fed doesn't hike. There is no guarantee of either, so caution remains a "trading position."

Which brings us to the market.

📈Technical Backdrop - Market Breaks The 200-DMA

The S&P 500 closed Thursday at 6,566 ahead of the Good Friday holiday, snapping a brutal five-week losing streak with a gain of roughly 3% on the week. Tuesday’s +2.9% surge—the best session since May—was ignited by reports that Iran’s President is open to ending the war, combined with Trump’s announcement of “productive talks.” March still ended down over 5%, but the bounce off 6,300 produced a 4.2% rally from trough to Thursday’s close. The question heading into Q2 is whether this bounce has legs or is simply another dead-cat rally in a larger corrective phase.

As shown, the current rally is pushing into resistance at the 20-day moving average, which has crossed below the 200-day moving average. Notably, momentum has triggered a short-term buy signal, and relative strength is improving from very oversold levels. However, the big question is whether investors can retake the current resistance levels and push markets higher into next week, but the data suggests caution.

The internals tell us this bounce is real but fragile. As of Wednesday’s close, only 27.6% of S&P 500 constituents traded above their 50-day moving average, a percentile reading of just 12, meaning breadth has been this weak only 12% of the time. That is an extraordinarily narrow rally. Meanwhile, 49.2% remain above their 200-DMA (25th percentile), below average but notably above the sub-30% washout levels of the 2022 bear market. The RSI has recovered to 45.7 from the oversold low-30s in late March, and the McClellan Oscillator has turned positive after deeply negative readings. Both are constructive, but the percentage of stocks above the 50-DMA needs to expand well above 50% before we can call this anything more than a "reflexive bounce within a downtrend."

So, is the market oversold enough for a sustained move higher? The short answer: the conditions are present for a tradeable rally, not a durable bottom. Seasonality helps as April is historically the second-best month for the S&P 500 (+1.4% avg per the Stock Trader’s Almanac), and earnings season kicks off with FactSet consensus at 13% YoY EPS growth. However, the macro overlay remains hostile: Brent near $117, the Fed has priced out cuts entirely (Macquarie expects a hike in 1H27, and the 10-year yield sits near 4.45%. The index closed Thursday still 1.2% below its 200-DMA (~6,642), and until price reclaims that level, the primary trend remains down. Investors who missed the bounce should not chase here.

Bottom line: If you are fully invested, this bounce is an opportunity to add hedges, not remove them. Consider put spreads on SPY or collar strategies on concentrated positions. If you’ve been building the shopping list we recommended, this isn’t the entry; that was the 6,300 level two weeks ago. The next entry comes on either a successful retest of March lows or a decisive close above the 200-DMA with breadth confirmation (50-DMA participation above 50%). Warren Buffett said it best Tuesday: he’d buy more Apple, “but not in this market.”

We agree. Defense over offense. Trade accordingly.

🔑 Key Catalysts Next Week

The first full week of Q2 is bookended by two events that will define the rate narrative for the next two months: the FOMC Minutes on Wednesday and March CPI on Friday. Everything else is secondary, other than what oil prices are doing.

The March 17–18 FOMC Minutes are the week's first inflection point, but we already know the outcome. The Fed held rates steady at 3.50–3.75%, with only Miran dissenting in favor of a cut. However, the minutes will reveal how close the internal debate actually was. Given that the March meeting was the first to formally incorporate the Iran oil shock, the 15% global tariff regime, and the February payroll collapse into the Summary of Economic Projections, the minutes will be important to consider. In those projections, core inflation forecasts were revised higher to 2.7% for 2026, while GDP was upgraded to 2.4%. That combination, hotter inflation with resilient growth, justified the hold. But the question the markets need answered now is whether the spike in oil prices, which will eventually weigh on economic growth, changes that math.

Speaking of oil prices, Friday's March CPI is the week's anchor and arguably the most consequential inflation print of the year so far. February came in at +0.3% MoM headline and +2.4% YoY, with core at +0.3% / 2.8%. But March is the first month that fully captures the oil price surge toward $100 following the U.S.-Israel strikes on Iran. Energy-specific CPI rose 0.6% in February before the worst of the oil spike, which March will make materially worse. Food prices were already accelerating at +0.4% MoM. The core goods basket is where tariff passthrough resided, and RBC's analysis flagged that declines in used-car prices had been masking the pressure in prior months. A hot March CPI could push rate cuts into December at the earliest, or off the table entirely. Any print above 0.4% MoM headline or 0.3% core will confirm those expectations.

Bottom line: The FOMC Minutes tell us what the Fed was thinking. The March CPI tells us whether they were right to hold. If inflation is accelerating while the labor market weakens, the policy trap is confirmed, and the market will have to price accordingly.

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💰 5-Consecutive Weekly Declines

In Tuesday's Daily Market Commentary, we noted that the market had just experienced five consecutive weekly declines. That's a lot, and as shown, it does happen, but not that often.

"The correction that we have seen so far has been quite normal, despite the more 'doom and gloom' narratives being expoused on the interwebs. Nonetheless, the recent 5-week streak of consecutive weekly declines is certainly worrisome. However, it isn’t unprecedented."

As noted above, we did get a reflexive rally this past week, ending that streak of consecutive weekly declines. However, that latest spike in volatility left my inbox with questions piling up fast.

• Is this the beginning of something worse?
• Should you be selling? Buying? Standing still?

Let me give you the honest historical answer. I don't know for certain, and historical data only gets you halfway to a useful decision.

Since 1965, the S&P 500 has recorded 26 separate instances of five or more consecutive weekly declines. That's roughly once every 2.3 years, and these streaks feel catastrophic in real time. This is when investors make the most mistakes over time. The emotional stress of the decline, combined with "doomsayers," drives investors to sell at the bottom. It is important to understand that, while these streaks feel alarming in real time, historical evidence suggests they function more as contrarian buy signals than as warnings of further collapse.

On average, the 4-week forward return following a fifth consecutive down week has been modestly positive, and the 12-month forward return has been meaningfully so. The data consistently shows that by the time the financial press is writing its most alarming prose, the market has already priced in a substantial portion of the bad news. That's the mechanical reality of markets: they discount the future, often imperfectly and almost always uncomfortably early.

That pattern holds in both directions. The moments that feel like everything is in free-fall, as noted, those have historically functioned more like contrarian buy signals than warnings of collapse. In March 2020, a five-week wipeout of roughly 34% was fully recovered by August, and the index was 16% above its pre-COVID peak by year-end. After the October 1987 crash, 12-month forward returns were emphatically positive, despite the four-week forward return looking like a catastrophe.

The Reflexive Rally Was Not Surprising

The market rallied on Tuesday and Wednesday, with Tuesday's rally one of the best trading days since 2022. However, that should also be unsurprising, since the best trading days tend to cluster with the worst market periods. As we noted in Stock Market Breadth on Monday:

"The single most damaging decision most investors make during periods of falling stock market breadth is selling. The data on this is unambiguous. Seven of the market’s 10 best days in any given 20-year period occur within two weeks of the 10 worst days, according to JPMorgan Asset Management research. The best days follow the worst days because fear-driven selling creates dislocations that are rapidly corrected. You can see this in the chart below, that the best and worst days are clustered together."

In other words, while investors are always told to just “buy and hold” because they will miss the 10-BEST days if they don’t, investors should focus on mitigating the risk of significant capital losses during those periods.

This doesn’t mean you can effectively miss all the bad days; however, given that higher-volatility periods tend to cluster, understanding when to reduce exposure can significantly improve outcomes over time. Even if you miss the 10-best days along the way. That math applies with particular force in setups like the current one. Since 1974, according to data compiled by Clear Perspective Advisors, the S&P 500 has returned more than 24% on average following a market correction. Only 25% of the 48 corrections since World War II have progressed into full bear markets. In other words, there is a 75% chance this correction will not turn into a bear market. However, dismissing that 25% entirely is just as foolish for future outcomes.

This is why the rally this past week was not unexpected. Oversold conditions, exhausted sellers, aggressive short positioning, and algorithmic covering all tend to converge after sustained selling pressure. Goldman's trading desk noted this week that the capitulation checklist is nearly complete, with the S&P now below all key moving averages and below critical CTA selling thresholds. When those conditions are clear, the snap-back can be sharp. But it's a trap.

Why do I say that? Because that is what I have learned repeatedly over 35 years of managing money. The rallies that come off oversold extremes are seductive precisely because they feel like confirmation that the worst is over. They're fast, they're loud, and they draw in sidelined capital chasing performance. Sentiment indicators flip from extreme fear to cautious optimism in a matter of days.

Bottom line: If the bull case for this rally is 'stocks were down a lot, and people were scared,' that's not a fundamental argument. It's a positioning argument. It expires quickly.

And in the current environment, the macro headwinds haven't gone anywhere. Even if the Iranian conflict is resolved on Monday, private credit stress remains, the impact of higher oil and gasoline prices is working its way through the economy, and questions remain about artificial intelligence.

But there is another reason to fade this rally.

Earnings Hit Still Coming

The difference between a durable recovery and a dead-cat bounce is almost always visible in the underlying fundamentals, not the price action alone. Right now, the fundamentals argue for caution.

Goldman's own scenario analysis puts a moderate slowdown path at 6,300 on the S&P 500 and a severe oil-shock path as low as 5,400. Neither of those scenarios is priced into current earnings estimates. S&P 500 companies are still being modeled at roughly $309 per share in earnings for 2026, figures built on assumptions about GDP growth and energy costs that the past eight weeks have materially challenged. When earnings revisions begin in earnest, they tend to hit in waves. We're likely in the early innings of that process, and it will impact forward returns. The reason is that the market trades off forward earnings expectations; if those expectations fall, the market reprices for lower earnings growth.

Add to that the technical damage. Breaking below the 200-day moving average is not a minor event. Historically, a clean break below that level without a swift recapture has resolved to the downside more often than not. The index now sits below all key moving averages, and the burden of proof has shifted. Bulls need to prove the trend has reversed. Sellers don't need to prove anything.

"As shown in the comparative table below, understanding the difference between a sustained break of the 200-dma and one that wasn’t was critical to future returns." - Break Of The 200-DMA

We are still within the first 4-weeks of the break of the 200-day moving average. The market rally this past week, following those five consecutive weekly declines, doesn't mean the downside risk is over. If the market fails to climb above that now-critical resistance level, the potential for a retest of recent lows increases.

However, this doesn't mean you get out of the markets entirely.

So, When Should You Start Accumulating

The one thing that bothers me most about the "Perpetual Purveyors of Doom" is that they repeatedly tell you for years that the market is going to crash. Eventually, they will be correct. However, what they don't tell you is when to start buying the cataclysm. The voices are currently louder than ever.

However, the current market backdrop is nothing like the catastrophic events of the past, such as the financial crisis or the Dot-com crash. This is a well-needed correction after the massive post-"Liberation Day" rally last summer. Nonetheless, the damage done during declines is always troublesome, but it needs to be kept in perspective.

Yes, we certainly suggest using this rally to cash in and reduce risk. After consecutive weekly declines, a rally was inevitable. However, I am also not saying "sell everything" or "stay in cash indefinitely." The market will eventually bottom and recover. The reason is that the market will eventually "price in" the risk and begin to look forward. The economy will adapt and begin to grow. As such, the question isn't whether to own equities, it's just a question of when and at what price.

There are four specific conditions I want to see before moving from a defensive to a constructive stance. None of them requires perfect clarity. All of them require meaningful evidence.

None of these conditions exists today. They may develop over the coming weeks or months. When they do, I'll tell you. However, here is how to position for what is likely coming next.

Investor Tactics For What Comes Next

Following five consecutive weekly declines, the market's bounce this week could continue for a bit longer. This isn't rocket science, and is something we repeat often. It is just a process to manage near-term risk.

• Treat any near-term rally as an opportunity to rebalance, not to add exposure. Use strength to trim positions outside your target allocation and to reduce concentration in sectors most exposed to energy-cost pressure — consumer discretionary, industrials, and highly leveraged names.
• Raise cash to a level that lets you sleep at night and act when opportunities arrive. That number is different for every investor, but the point is intentional: cash is a position, not a failure of nerve. Having it means you can be opportunistic when others are forced to sell.
• Hedge risk that you want to keep. If you hold long-term positions, consider hedging them to reduce portfolio volatility.
• Watch the 200-DMA retake attempt closely. A failed retake — where the market rallies back toward that level and then rolls over — is one of the clearest signals that the intermediate-term trend remains down. A successful retake on expanding volume materially changes the picture.
• Stress-test your portfolio for oil above $100 through year-end. Goldman's bear case is 5,400 on the S&P. That's a decline from current levels that would test the tolerance of most retail investors. Know your number before the market finds it for you.
• Don't abandon fixed income. Duration has been painful, but investment-grade credit and short-term Treasuries are doing exactly what they should: providing ballast. A barbell approach — short-duration credit on one side, selectively opportunistic equity exposure on the other — remains the structure most likely to survive what comes next.

Again, this is nothing new, and we can sum it all up in just five words:

Defense over offense. Trade accordingly.

🖊️ From Lance’s Desk

This week's #MacroView blog is part one of a two-part series on oil shocks, the economic impacts, and the Federal Reserve's response problem.

Also Posted This Week:

• Beta: A Powerful But Faulty Tool For Managing Risk - RIA - by Michael Lebowitz
• Stock Market Breadth: Warning Or Opportunity? - RIA - by Lance Roberts

📹 Watch & Listen

We discuss the market's failure to break above the 200-day moving average and the two paths investors should watch in the weeks ahead.

Subscribe To Our YouTube Channel To Get Notified Of All Our Videos

📊 Market Statistics & Analysis

Weekly technical overview across key sectors, risk indicators, and market internals

💸 Market & Sector X-Ray: Market Cracks Support

As noted last week: "With every other sector extremely oversold, the logical setup now is for that rotation out of energy into other areas of the market to begin as soon as clarity on Iran emerges." As shown in the upper right box, that is what happened this past week. However, with no real clarity on a resolution for Iran, the current rotation will likely be short-lived. The relief rally this past week is an opportunity to reduce risk and rebalance portfolios for now.

📐 Technical Composite: 39.13 – Relief Rally From Deep Oversold

As stated last week, "The odds of a reflexive rally are increasing. We are currently at levels we haven't seen since 2022." That reflexive rally came last week, and improved technical conditions. However, if this is a bounce within a corrective cycle, it probably won't last long.

🤑 Fear/Greed Index: 53.23 – Investors Remain Cautious

This past week, sentiment stabilized as the market bounced from deeply oversold levels. As we noted last week, "The Iran conflict continues, and energy prices remain elevated, pushing investors to become increasingly cautious. While not at 'fear levels' yet, the selloff has been rather sharp, so a reflexive rally is likely before a further decline." The reflexive rally is your opportunity to rebalance risk.

🔁 Relative Sector Performance

As noted last week, "Given the divergence between Energy and the rest of the market, profit-taking in Energy seems prudent." This past week, energy sold off while the rest of the market rallied. Energy remains overbought, although in a better position, and Discretionary, Financials, and Healthcare are the most oversold.

📊 MFBR Index (Money Flow/Breadth Ratio Indicator): 35% = Risk Off

NEW! MFBR Index: The Money Flow Breadth Ratio (MFBR) model is a rules-based equity allocation framework that uses weekly S&P 500 money flow data to generate buy, sell, and neutral signals. It is designed to systematically adjust portfolio equity exposure in response to the direction and persistence of institutional capital flows, aiming to reduce drawdowns while capturing the majority of market upside.

As of the most recent weekly reading, the MFBR stands at 35% and falling, placing it in the 35–40% zone — the single worst sub-range within SELL territory. A 25-year backtest covering 1,351 weekly observations from January 2000 through March 2025 reveals just how unfavorable this zone has been historically. Across all 110 weeks where the MFBR registered below 40%, the average forward return was +0.3% at one month, -0.1% at three months, and +1.8% at six months — well below the all-period baseline of +0.6%, +1.8%, and +3.7% over those same horizons. Win rates tell an even starker story: only 53.2% of SELL periods saw positive returns at one month and just 46.8% at six months, compared to the baseline win rate of 69.5% at six months.

📊 Sector Model & Risk Ranges

Both the Dollar and Energy remain well outside their respective risk ranges, suggesting that reversals are likely if there are any short-term resolutions in Iran. Outside of those two sectors, the massive deviations we saw in other sectors have all been reversed, which is why we repeatedly warned to take profits in those areas. The probability of a rather strong reflexive rally is building, particularly as we move into April.

Have a great week.

Lance Roberts, CIO, RIA Advisors

The post Consecutive Weekly Declines & Fading Rallies appeared first on RIA.

After more than three decades of watching oil markets upend economies, one pattern keeps repeating: investors learn the wrong lessons from the last shock. The 1973 OPEC embargo taught us that geopolitical disruptions are temporary. That lesson then got everyone killed, financially speaking, in 1979. The 2003 Iraq War produced only a mild oil bump and no recession, so traders got comfortable. Then 2008 happened. Today, with Brent crude having spiked over 60% since U.S. and Israeli strikes on Iran began in late February, the same dangerous reasoning is circulating again. That narrative is that this "event" is manageable and will resolve quickly. If that is the case, then the economy will absorb it.

That may indeed be the case. However, the conditions that determine whether an oil shock becomes a full recession are specific, quantifiable, and worth examining with clear eyes. That is what this analysis does.

Not All Oil Shocks Are The Same

The post-World War II era has produced a half-dozen oil price crises significant enough to reshape the global economy. They share a surface-level similarity: prices spike, headlines scream, and politicians rage. However, beyond those commonalities, they diverge dramatically in their underlying causes and economic consequences. (Read Energy Price as an Economic Indicator)

The 1973 OPEC Embargo stands alone as the archetype. OAPEC nations cut production and placed a deliberate embargo on the United States in response to U.S. support for Israel during the Yom Kippur War. In roughly 4 months, the price of crude oil rose from $3 per barrel to nearly $12 globally, a 300% surge. The U.S. economy, already running hot with inflation at 3.4%, could not absorb the blow. GDP contracted 0.5% in 1974. Unemployment climbed from 4.6% to 9% by May 1975. The Fed raised its benchmark rate from 5.75% in 1972 to 12% by 1974 and still could not contain prices. The result was stagflation: high inflation (above 9%), high unemployment, and slow economic growth. Those THREE factors are the ugliest combination in economics.

Note: That last sentence is crucially important. Headlines are currently filled with the term "stagflation." As discussed in the linked article above, current economic data does not meet the definition of stagflation.

The 1979 Iranian Revolution delivered a second shock to an economy still bruised from the first. Iran's oil exports, then running at roughly 5 million barrels per day, collapsed as internal chaos overtook the country. Unlike the 1973 embargo, this was not a deliberate strategy; it was a production collapse driven by revolution. The oil supply only dropped about 4% globally, but the market's reaction doubled crude prices to nearly $40 per barrel within 12 months. The Iran-Iraq War, which began in 1980, compounded the disruption. The U.S. entered another recession. Fed Chairman Paul Volcker ultimately had to drive interest rates to 20% to break the inflation spiral.

The 1990 Gulf War shock was sharper but shorter. Iraq's invasion of Kuwait removed roughly 4.3 million barrels per day from the market. Oil went from $15 to $42 per barrel in two months, a 75% spike. The U.S. entered a mild recession, with the S&P 500 falling about 21% from its peak. Crucially, the disruption lasted only months. Once coalition forces pushed Iraq back and Kuwaiti fields resumed production, prices fell sharply, and the economic damage was contained. This episode is the key comparative reference point for why duration matters so much.

The 2007-2008 oil surge is more complex. Prices rose nearly 100%, from roughly $50 to a peak of $147 per barrel in July 2008. The cause was not primarily a supply disruption; it was demand-driven, driven by a decade of explosive growth in China and by hoarding commodities in an unprecedented manner. But the shock landed on an economy already fracturing from the housing and credit collapse. The S&P 500 would go on to lose 55% from peak to trough. Attributing that devastation primarily to oil prices misreads the episode. The financial system's breakdown amplified every other economic stress factor.

The Russia-Ukraine oil shock of 2022 drove Brent crude to $139 per barrel by March before falling back. The U.S. never officially entered a recession by the traditional two-quarter GDP definition, though it suffered a significant corrective event. The key difference was that the U.S. had by then become a net exporter of petroleum products, blunting the direct impact of prior shocks. However, the Fed was aggressively hiking interest rates to combat the surge in inflation resulting from the Pandemic-driven stimulus.

So, what does this mean?

What Separates The Killers From The Scares

The Federal Reserve Board's own researchers concluded that there is no mechanical link between net oil price increases and subsequent recessions, even controlling for the magnitude of the spike. That statement sounds almost reassuring; however, what it actually means is more sobering. The same oil shock that causes a deep recession in one environment may barely register in another. The conditions surrounding the shock determine the outcome.

Five variables differentiate the recession-inducing shocks from the ones that economies absorbed:

• Duration and persistence of the disruption. The 1973 embargo lasted six months. The Iranian Revolution removed Iranian supply for much of 1979, then extended it by the Iran-Iraq War into the 1980s. These were multi-year disruptions that forced structural change, manufacturers to reprice inputs, households to slash consumption, and central banks to make crisis decisions in real time. The 1990 Gulf War spike lasted two months before Kuwait came back online. The economy absorbed a body blow, but not a sustained one. The difference between a broken rib and a severed artery is time and severity.
• Inflation conditions before the shock. The 1973 and 1979 shocks both hit economies where inflation was already elevated, and inflation expectations were untethered. The St. Louis Fed's research found that the average real energy price increase preceding the four recessions between 1973 and 1991 was 17.5%, and in each case, the shock compounded pre-existing inflation dynamics. When workers expect prices to keep rising, they demand higher wages. When companies expect input costs to keep rising, they raise prices pre-emptively. The wage-price spiral becomes self-reinforcing. The 2004 to 2005 oil price increase was actually larger than the one that preceded the 2007 to 2009 recession, yet it did not trigger a recession. The difference was that inflation expectations were anchored in the mid-2000s, unlike in the 1970s.
• The role of monetary policy and its timing. Paul Volcker's decision to raise rates to 20% was the necessary kill shot on 1970s stagflation, but it also pushed the economy into a severe 1981 to 1982 recession. The Fed's response to an oil shock matters as much as the shock itself. An accommodative Fed that lets oil-driven inflation embed in the broader economy risks a worse outcome. A hawkish Fed that overreacts to supply-side inflation can trigger a recession independent of the oil shock itself. Neither 2003 nor 2010 saw the Fed forced into a crisis tightening cycle specifically because of oil.
• Energy intensity of the economy. This is the most structurally important factor for the current period. The amount of oil required to produce one unit of U.S. GDP has declined by more than 70 percent since the 1970s, according to World Bank data. As Paul Krugman noted in a recent analysis, the U.S. economy has roughly tripled in size since the late 1970s while consuming approximately the same total volume of oil. Every dollar of GDP today requires dramatically less energy than it did in 1973. As the IMF estimated, a sustained 30% increase in oil prices would reduce global GDP by up to 0.5%, which is serious but not catastrophic. The same shock in 1973 could cause damage multiple times that amount.
• U.S. net energy position. In 1973, the United States imported nearly everything it consumed. Today, the U.S. runs a net petroleum trade surplus — $58 billion in 2025, per Census Bureau data. Higher oil prices are a direct tax on importers. They're a revenue windfall for exporters. The U.S. is now partially both, which fundamentally changes the calculus. Energy companies and the states where they operate benefit from price spikes even as consumers are hurt. That offset did not exist in any meaningful way before the shale revolution.

The 2026 Oil Shock - How Does It Compare?

On February 28, 2026, the United States and Israel launched coordinated strikes on Iran targeting leadership, security forces, and missile infrastructure. Within days, Iran retaliated with missile strikes targeting oil vessels and infrastructure throughout the Gulf region. The Strait of Hormuz, through which roughly 20 million barrels per day of crude oil and refined products normally flow, representing about 20% of global seaborne oil trade, effectively closed to normal traffic. Such headlines generally provide a springboard for more catastrophic views.

Those actions caused Brent crude to surge from around $70 per barrel before the conflict to $113.52 as of March 23. That is a 60-plus percent spike in under four weeks. In nominal terms, this is approaching the 2008 peak of $147 per barrel. The IEA's 32 member nations coordinated the largest emergency drawdown of strategic reserves in the agency's 52-year history, releasing 400 million barrels, more than double the volume deployed after the Russia-Ukraine outbreak in 2022.

So is this time different? In some ways, yes — and in ways that cut both directions.

The structural arguments for a more muted impact are real.

• The U.S. oil intensity of GDP has fallen roughly 70% since 1973.
• The U.S. is a net petroleum exporter.
• The strategic reserve architecture now exists specifically for scenarios like this.
• And inflation expectations, while elevated, are nowhere near the unanchored levels of the late 1970s.

Given this backdrop, Oxford Economics modeling suggests that global oil prices would need to average $140 per barrel for two months, alongside significant financial market tightening and deteriorating consumer confidence, to pose a clear recessionary risk.

On the other hand, the arguments for this being a more dangerous shock are equally serious. The Strait of Hormuz presents a physical chokepoint that cannot be bypassed through rerouting or sanctions workarounds, the way Russian supply was redirected after 2022. Roughly 80% of Asia's oil imports transit that strait. Vietnam holds fewer than 20 days of reserve supply. The European Central Bank has already postponed planned rate cuts, raised its 2026 inflation forecast, and warned of the risk of stagflation for energy-intensive economies. Germany, the UK, and Italy face the highest recession exposure in Europe. And the U.S. economy entered this shock with a soft labor market, elevated consumer debt, declining consumer sentiment, and a stock market trading at historically expensive valuations before the conflict began.

Capital Economics recently projected that even in a contained three-month conflict scenario, Brent could average $150 per barrel over the next six months. In such a prolonged scenario, the IMF Managing Director warned of a meaningful global inflationary impact. Morgan Stanley also flagged that a conflict lasting longer than a few weeks would meaningfully raise recession probabilities through multiple channels: energy costs, inflation persistence, and tightening financial conditions.

This shock is bigger in scope than 1990, comparable in speed to 1973, structurally more like the physical supply shock of 1979 than the demand-driven surge of 2007, and occurring in an economy that is better insulated in some ways but already stressed in others.

The honest answer is that the outcome is genuinely uncertain and a situation that investors should not entirely ignore.

MARKET BEHAVIOR AND THE INVESTOR PLAYBOOK

History draws a sharp line between market outcomes in oil shocks that became recessions and those that did not. That line does not disappear just because it's uncomfortable.

In the four oil-linked recessions between 1973 and 1991, the S&P 500 experienced average peak-to-trough declines of 20-48%. The 2007 to 2009 Great Recession, where elevated oil prices compounded financial system collapse, saw the index fall 55% from its highs. Recovery in these recession scenarios took anywhere from 126 trading days (post-COVID) to 895 trading days (post-Great Recession) to reclaim prior levels. That dispersion matters to any investor thinking about sequence-of-returns risk or near-term liquidity needs.

The non-recession oil shock episodes tell a different story. After the 2003 Iraq War oil spike, the S&P 500 delivered roughly 25% gains over the following year. Following the 2016 OPEC production cut cycle and resulting price rebound, equities posted approximately 19% returns in the subsequent 12 months. Kedia Advisory's analysis of 7 oil spike episodes since 1986 found that the S&P 500 averaged a 24% return in the year following a major oil surge, with 6 of the 7 episodes producing positive forward returns. The one exception was 2008, when oil's spike coincided with total financial system breakdown.

The critical investor lesson is that the oil shock itself rarely determines the market outcome. The recession does. And the recession typically follows when the shock is persistent, when it combines with pre-existing economic weakness, and when monetary policy cannot respond flexibly. That is precisely the risk matrix investors need to monitor right now.

What should investors do differently given this analysis? Three principles apply regardless of how the current conflict resolves.

• Manage duration risk in fixed income carefully. If this shock persists and inflation re-accelerates, the Fed will face pressure to keep rates higher for longer. That means Treasuries with long maturities carry more risk than they appear. Short-duration Treasuries and I-bonds remain the cleaner defensive position.
• Review energy exposure deliberately. Energy stocks historically outperform during sustained oil price shocks. The 2022 experience confirmed this as energy was the only S&P 500 sector to post positive returns for the year. But energy stocks often reverse sharply when the shock resolves, so this is a tactical, not a structural, position.
• Most importantly, do not let the shock force reactive decisions. The S&P 500 is already down about 7% month-to-date as of late March. A further 10 to 15% correction would not be historically unusual, even in a non-recessionary oil-shock scenario. For investors with properly structured portfolios, that kind of volatility is noise. For investors concentrated in high-multiple, rate-sensitive growth stocks, it may be the beginning of a more serious repricing.

The data across 50 years of oil shocks says this: if it's a scare, markets often recover quickly, and investors who sold regret it. If it's the beginning of a recession, the damage compounds for months before the bottom is clear. The difference between those two outcomes is driven by factors that are still unfolding and questions that need to be answered.

• How long will the Strait of Hormuz remain disrupted?
• Will inflation expectations remain anchored or begin to drift higher?
• And, most critically, will the Fed maintain its policy flexibility or lose it?

I'm watching all three closely, and so should you.

References

• Hamilton, J.D. (2011). "Historical Oil Shocks." NBER Working Paper. econweb.ucsd.edu/~jhamilto/oil_history.pdf
• Federal Reserve Bank of St. Louis. (2001). "Rising Oil Prices and Economic Turmoil: Must They Always Go Hand in Hand?" stlouisfed.org
• Kilian, L. (2014). "The Role of Oil Price Shocks in Causing U.S. Recessions." Federal Reserve Board, International Finance Discussion Papers No. 1114.
• U.S. Energy Information Administration (EIA). WTI and Brent Crude Oil Historical Data. eia.gov
• Al Jazeera. (March 24, 2026). "How does the current global oil crisis compare with the 1973 oil embargo?"
• Al Jazeera. (March 23, 2026). "Why the oil and gas price shock from the Iran war won't just fade away."
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