Record high delusion?

00:00:00: Despite rising oil prices and despite higher yields, global equity markets continue to climb to record high levels.

00:00:07: Stronger than expected.

00:00:09: earnings largely driven by AI and energy giants help the S&P.

00:00:13: five hundred deliver its strongest earnings growth since two thousand twenty-one while emerging market and Asian technology stocks also surged.

00:00:22: but beneath optimism craps are emerging.

00:00:25: So welcome to Swissco Steady Market Talk, it's Tuesday, the twelfth of May.

00:00:30: I'm Ipek Oskar Deshkaya and gather a few flags regarding the relentless equity rally that i will share in this video.

00:00:37: but before do as always please keep in mind that opinions on my own is not financial advice.

00:00:52: So, major US and European indices resisted well yesterday to a sharp rise in oil prices after the U.S.-Iran peace hopes fell down a cliff.

00:01:01: Regardless of S&P-Five hundred Nasdaq printed fresh record high levels.

00:01:06: even industry heavy Doe Jones index eaked out is small gain.

00:01:10: Again, most gains came from the technology names with one-act SMI Conductor ETF surging another one point seventy two percent to of course.

00:01:19: Another record high level while they European indices were a little bit less enthusiastic than that.

00:01:25: as rising yields in Europe has reaction to rising oil prices and rising inflation expectations somehow tame enthusiasm.

00:01:33: This morning, the US grid is consolidating between the nine to eight hundred dollar per barrel range and futures are slightly in the negative.

00:01:41: Now, I've trained myself to look at the market with different and rosier glasses.

00:01:47: Because let's admit that stock prices have risen despite financial crisis pandemics wars energy crises And so measures like liquidity injections QE lower rates and fiscal spending help new tools and technologies increase productivity New businesses pop up and the world just moves on.

00:02:05: But what we see today is that the downside corrections are disappearing, leaving no room for market to readjust.

00:02:12: Today, the market's really on good news and bad news with hope things will get better!

00:02:18: And that's leading to a parabolic rise in some sectors.

00:02:22: As much as I love technology and stocks involved, A chart like Cosvindex for example raises a few questions indeed.

00:02:28: So i collected a few charts & opinions regarding what is causing the market rally To extend despite the deluge of an ideal geopolitical headlines And rising energy prices as well Considering that Energy Is THE building block Of every sector out there from food technology.

00:02:48: Now the major one that we are pointing at is strong earnings.

00:02:51: obviously, according to FACC said among eighty nine percent of S&P five hundred companies already reported results so far, eighty four percent reported a positive EPS surprise and eighty percent posted a positive revenue surprise And earning expectations were not soft-fitting.

00:03:09: into their first quarter earnings The s&p five hundred earnings growth was expected be around thirteen per cent year over.

00:03:16: Now that we're entering the final stretch of this earnings season, earnings growth since the fourth quarter of two thousand and twenty one when earnings rose thirty-two percent says facet.

00:03:44: In other words, S&P five hundred's earnings growth came in at roughly twice to level analysts had expected.

00:03:51: How come?

00:03:51: A stronger than expected AI-driven growth, resilient demand and surging energy profits led companies to massively outperform the expectations.

00:04:02: And that's fine!

00:04:03: That also explains why the equity rally has narrowed to a handful of technology at energy stocks.

00:04:08: In fact if you strip the technology names from their equation The implied earnings growth for the rest of S&P five hundred index was likely in the mid single digits roughly around five to seven percent.

00:04:20: And the technology optimism and strong earnings also push chip-heavy Asian indices higher as well, with Tai-X and Cosby standing out.

00:04:29: But if we broaden this scope beyond US and BEYOND the chip makers... ...and despite rising oil prices in a stronger US dollar… The EM stocks also extended gains to record high levels!

00:04:40: Why?

00:04:41: Because investors rotated away from expensive US equities into cheaper international and EM valuations maybe.. ..And despite the strong US dollar Global liquidity remained abundant because AI-driven KPEX and commodity revenues likely continued recycling into financial markets, and central banks also helped.

00:05:00: Copper for example a barometer for global economic health rose twenty four percent since the end of March.

00:05:07: so something doesn't add up.

00:05:09: First, the higher energy prices and stronger US dollar are fundamentally harmful to EM markets.

00:05:15: And those who are not technology heavy will at some point face the reality of Energy Scarcity!

00:05:20: And it's all in the EM!

00:05:21: If Middle East war doesn't end quickly The world including G-Seven that have been relying heavily on their ample oil reserves Will also start facing energy scarcity If there is no resolution to the Middle East conflict, if the Strait of Hormes remains closed and energy flows restricted.

00:05:41: The world oil inventories will reach the operation stress level by June And if There's No Resolution To The Middle-East Conflict By September!

00:05:49: World Oil Inventories Are Expected To Dive To Operational Floor Level.

00:05:54: This Is The Minimum Level That Is Required To Keep Pipelines Functioning And Refineries Operating So that risk is clearly being underpriced not to say must be ignored, overshadowed by the strength of technology earnings.

00:06:08: But even there!

00:06:09: Even regarding the earnings in an ex-post mic security highlights this year's global equity rally almost entirely driven by higher EPS estimates and letter especially striking for MSCI EM stocks times whose hedge fund has been washed out by the strength of the bullish tide recently, insist that today's technology rally looks like the peak off-the.com bubble because he highlights that the Nasdaq hundred is priced at forty three times its earnings above the implied level of thirty.

00:06:47: He argues Wall Street may be overstating by more than fifty percent their earnings as are fastest growing more highly-valued companies.

00:06:58: The ones that helped this MP, five hundred print at twenty seven point seven percent earnings growth versus just five to seven per cent in growth That would have been printed if they were not there.

00:07:09: He says the best would be to scale back exposure To surging technology stocks and add the current market environment has reached historically dangerous extremes reminiscent of prior speculative bubbles.

00:07:21: So yes right now a lot of talks and opinions out there regarding the impressive market rally in weather, this rally could be sustainable for the longer run when economic fundamentals and geopolitics are not necessarily pointing at Well, an ideal future at least in the very short run.

00:07:40: So I'll let you digest these points have your own opinion and cite a great command that came to my episode yesterday The market can be irrational longer than you can remain solvent.

00:07:51: Anyway today the US inflation report will be in focus with inflation expected To have risen due to Iran led jumping energy prices In the U.S last month.

00:08:02: A higher than expected report could revive the hawkish Federal Reserve expectations, push the yields higher and weigh on equity valuations.

00:08:10: While a softer-than-expected read will give relief that energy-led inflation is maybe being contained but in all cases US is trying to put several measures together today to ease price pressures moving forward which includes gas tax holiday proposals for example and tariff rate cuts as suspension of beef.

00:08:30: The rising energy prices could easily eat that up, along with the building pressure on Chinese good prices had so far health-keeping inflation in check in the West.

00:08:41: Today even that break is about to fall!

00:08:43: So this all for today.

00:08:45: I'm Yipega Oskar Deshgeya and thank you for joining me And Thank You For All Your Beautiful And Supportive Comments.

00:08:52: This episode of Market Talk has been helpful and it's been insightful to you.

00:08:57: So please, do not hesitate leave your comments, reactions or questions below as usual!

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00:09:23: So I will meet again tomorrow, until then good day

00:09:43: trading!