Regardless, the S&P500 and Nasdaq100 printed fresh record highs, while even the industrial-heavy Dow Jones eked out a small gain. Most gains came from tech names, however, with VanEck’s Semiconductor ETF surging another 1.72% to — of course — another record high, while European indices were less enthusiastic, as rising yields in reaction to higher oil prices somehow tamed enthusiasm.

This morning, US crude is consolidating within the $98–100pb range, and futures are in the red.

Now, I’ve trained myself to look at the market through different — and rosier — lenses. Because let’s admit it: stock prices have risen through financial crises, pandemics, wars, energy crises and more. Measures like liquidity injections, QE, lower rates and fiscal spending help, while new tools and technologies increase productivity, new businesses emerge, and the world moves on.

But what we see today is that downside corrections are disappearing, leaving no room for the market to readjust. Today, markets rally on good news, and on bad news — on hopes that things will get better tomorrow. And that’s leading to a parabolic rise in some sectors. As much as I love technology and the stocks involved, a chart like the Kospi raises a few questions.

In fact, I collected a few charts and opinions regarding what’s causing the market rally to extend despite the deluge of unfavourable geopolitical headlines and rising energy prices — considering that energy is the building block of every sector out there, from food to tech.

The main explanation being pointed to is strong earnings. According to FactSet, among the 89% of S&P 500 companies that have reported results so far, 84% posted a positive EPS surprise and 80% reported a positive revenue surprise. And earnings expectations were not soft heading into the earnings season. On the contrary, the S&P500 earnings growth was expected to come in around 13.1%–13.2% YoY.

Now that we’re entering the final stretch of the season, the verdict is that S&P 500 earnings growth is tracking near 27.7%. If 27.7% is confirmed as the final growth rate for the quarter, it would mark the S&P500’s strongest earnings growth since Q4 2021, when earnings rose 32.0%, according to FactSet. In other words, S&P 500 earnings growth came in at roughly twice the level analysts had expected.

How come? Stronger-than-expected AI-driven growth, resilient demand and surging energy profits led companies to massively outperform expectations. Fine. That also explains why the equity rally has narrowed to a handful of tech and energy stocks. In fact, if you strip tech out of the equation, the implied earnings growth for the rest of the S&P500 was likely in the mid-single digits, roughly around 5–7%.

Tech optimism also pushed chip-heavy Asian indices higher, with the Taiex and Kospi standing out. But if we broaden the scope beyond the US and tech, and despite rising oil prices and a strong US dollar, EM stocks also extended gains to record highs.

Why? Investors rotated away from expensive US equities into cheaper international and EM valuations, and despite the strong US dollar, global liquidity remained abundant because AI-driven capex and commodity revenues likely continued recycling into financial markets. Copper — a barometer for global economic health — has risen 24% since the end of March!

But something doesn’t add up. First, higher energy prices and a stronger dollar are fundamentally harmful for EM markets, and those that are not tech-heavy will at some point face the reality of energy scarcity.

And it’s not only EM. If the Middle East war doesn’t end quickly, the world — including the G7 economies that have relied on their ample oil reserves — will start facing scarcity. If there’s no resolution to the Middle East conflict and the Strait of Hormuz remains closed, global oil inventories could reach operational stress levels by June.

If there’s still no resolution by September, inventories could fall toward operational floor levels — the minimum required to keep pipelines functioning and refineries operating. That risk appears underpriced — if not mostly ignored — overshadowed by the strength of earnings.

But even there, in an X post, Mike Zaccardi highlighted that this year’s global equity rally is almost entirely driven by higher EPS estimates. And that is especially striking for MSCI EM stocks.

And last but not least, Michael Burry — arguably the most famous bear of modern times, whose hedge fund has recently been washed away by the strength of the bullish tide — insists that today’s tech rally resembles the peak of the dot-com bubble.

He highlighted that the Nasdaq 100 is trading at around 43 times earnings, above its implied level of 30, because he argues that 'Wall Street may be overstating by more than 50% the earnings at our fastest-growing, most highly valued companies', he said. The same companies that largely helped the S&P500 print that 27.7% earnings growth, versus the 5–7% growth seen outside tech.

But you know what they say 'the market can remain irrational longer than you can remain solvent.'

Anyway, today, the US inflation report will be in focus, with inflation expected to have risen due to the Iran-led jump in energy prices. A higher-than-expected reading could revive hawkish Federal Reserve (Fed) expectations, push yields higher and weigh on equity valuations, while a softer-than-expected print would offer relief that energy-led inflation is being contained.

In all cases, the US is trying to put several measures together to ease price pressures — including a proposed gas tax holiday and a suspension of tariff-rate quotas on beef imports. But rising energy prices could easily offset those efforts, alongside mounting pressure from Chinese goods prices, which had so far helped keep Western inflation in check. Today, even that pillar may be starting to crack.