When a market is close to a record and nobody is certain they can trust it, a certain kind of silence descends. Last week, you could sense it. Even though the Dow crossed 50,000 for the first time and the S&P 500 and Nasdaq closed at all-time highs, most traders were talking about what might end it rather than how far things had gone. The S&P 500 had just extended its winning run to six weeks, its longest since 2024. Such streaks typically inspire confidence. For the most part, this one made me hold my breath.
The math contributes to the discomfort. The S&P 500 has risen about 19% since its March low to reach the top 7,500 for the first time ever, and nearly all of that gain has come from a small number of semiconductor companies. AI infrastructure, memory chips, and the usual suspects. The index is essentially flat for the month on an equal-weight basis, which means that while the headline number continues to set records, the average stock has hardly changed. From a distance, this type of rally appears spectacular, but up close, it seems a little hollow. This is not new for markets. I think of the late 1990s, and not in a good way.
The bond market, on the other hand, has been less courteous. Everything was shaky on Friday. Globally, sovereign yields increased; the U.S. 30-year Treasury reached its peak in roughly a year, and the U.K. 30-year Gilt yields reached levels not seen since the late 1990s. In sympathy, long-term Japanese debt was sold off. The increase in yields hurt tech stocks, which had been doing the most work. When borrowing costs suddenly increase everywhere, it usually indicates something, and investors appear to understand it even if they are unable to identify it.
Oil lies beneath all of this, and a war lies beneath oil. West Texas Intermediate was trading at about $106, while Brent crude surpassed $110 per barrel after rising by nearly 8% the week before. Since the United States and Israel first attacked Iran at the end of February, prices have increased by more than 50%, and the Persian Gulf supply is being constrained by muted flows through the Strait of Hormuz. President Trump wrote in his own all-caps register over the weekend that Iran’s time was running out and that they “won’t be anything left of them” if they didn’t act quickly. Regardless of how one interprets the rhetoric, the market saw it clearly: oil prices were rising, futures were falling, and concerns about inflation were once again raised.
The final point is the one that really counts. Inflation in April was higher than anticipated, and Fed officials have been indicating more and more that they are willing to raise rates rather than keep them. In contrast to the rate-cut optimism that prevailed earlier this year, traders now price about a 20% chance of a rate hike in October and a 30% chance in December. Kevin Warsh, a recent hire at the Fed, takes on a position with very little flexibility. No matter how loudly the White House calls for a cut, as Ed Yardeni put it, the macro backdrop no longer supports an easing bias.
Thus, Wednesday is now the focus of everything. Wall Street anticipates approximately $79 billion in revenue and earnings close to $1.76 per share when Nvidia releases its first-quarter results, following eight consecutive quarters of exceeding forecasts. It is currently valued at approximately $5.46 trillion. It is an odd situation for any market to find itself in when one company has turned into the load-bearing wall of an entire bull market. Walmart and Target report at the same time that consumer sentiment declines to all-time lows, creating a historically short-lived gap between stock buyers and grocery shoppers.
It’s difficult to ignore the tension. The records are authentic. The cracks are also present. As I watch this play out, the truth is that no one seems totally convinced that the music will continue to play, not even those who are most invested in the optimism. Which signal prevails is still up in the air. We might learn more by Thursday.
