Published June 5, 2026
As investors, we scour the news for clues how our investments might be affected by changes in the economy, geopolitics, et al. What we cannot see are the flows of money around the global markets. All we can see are the resultant prices of stocks, bonds and commodities as money flows in and out. Those price movements are what drive our models and, thus, our investment decisions in the short-to-medium term (where our models operate).
The below summary of a recent Delta Research report mirrors many such reports we have read recently warning of a coming spike in oil prices as the Strait of Hormuz remains largely shut off.
“The S&P 500 reached a new all-time high this week despite elevated instability in the Middle East and potential for further oil market disruption. The war in Iran is now three months old and may persist for the foreseeable future. Exxon Senior Vice President Neil Chapman warned this week that the price of Brent oil could spike to $150-$160 per barrel if oil inventories fall to all-time lows in the next two to four weeks. High energy prices are a direct input to higher inflation and potentially lower consumer spending.”
The paragraph also notes that stock markets are at record highs despite a record level of instability in oil supply, despite relatively high inflation and resultant higher interest rates, despite high stock market valuations, despite concerns about ________________ (fill in the worry of the day).
As we’ve noted, corporate profits are soaring. Corporate profits drive stock prices. And market strength begets more market strength. The chart below shows the outsized returns when stocks have posted substantial gains over a nine-week period, such as we’ve just had. Results 3, 6, 12 months later are higher in every case but one.
That one time in the past 75 years when a strong nine-week market was followed by losses? That period was in the midst of the dot-com crash and bear market in 2001. In other words, it was a ferocious bear market rally – a very different market than we are currently in.
Now, we can pick on the data a bit noting that there are a handful of instances where the results are somewhat “double-counted” in that it’s data from the same rally (as in the late 1974/early 1975 period). Nonetheless, the conclusion is the same.
The point being that there were certainly concerns during each of these rallies. But strongly rising stocks continued to deliver more gains. We will see if this time is different.
Market Update
The AI trade continued pushing stocks higher Monday with outlandishly good earnings from equipment makers Dell and HPE adding to the enthusiasm. The broad indexes closed up +0.3%. Slim gains were had Tuesday though semiconductors pushed further upward. An announcement of Alphabet’s plan to issue $80B in stock reminded investors of the extraordinary cost of funding AI. A step backward in the war with Iran sent shares down -0.8% Wednesday while a fresh set of tariffs further hampered investors. Semiconductor firm Broadcom failed to please investor’s high expectations ahead of Thursday’s trade sending shares in that company down sharply. The negativity did not spill over into the broader market though as strength in banks, industrials and healthcare led indexes to a +0.4% add. Friday’s monthly jobs report proved to be the straw that broke the nine-week rally. Significantly more hiring than projected sent interest rates sharply upward. That move unwound large swaths of the AI-related gains of recent days. The Nasdaq 100 (QQQ) plunged -4% while the S&P 500’s loss was half that much. Shares of defensive sectors along with financials and real estate found buyers despite the upward thrust in interest rates as rotation out of tech was the clear theme of the day.
Much of the AI ebullience came out of stocks this week as a Friday sell-off pushed stocks to their first losing week since the early days of the Iran War. The S&P 500 gave back -2.6%. The Nasdaq 100 (QQQ) tumbled -4.7%. Small cap stocks slipped -2.9%.
Warm wishes and until next week.