This week Gary covers how the markets shifted from “optimism to uncertainty.” Markets hit all-time highs in the middle of the week, only to pull back due to geopolitical events and oil price volatility. Oil is starting to impact the average American consumer, with high gas prices changing spending and saving patterns. Watch the video to hear Gary’s full analysis, plus insights from earnings season and inflation expectations.

TRANSCRIPT:

Hello, everyone. Welcome back to 7 Market Movers. My name is Gary Quinzel with Wealth Enhancement. This past week was a good reminder of how quickly markets could shift from optimism to uncertainty.

We saw stocks push to new all time highs midweek only to pull back as oil volatility and geopolitical headlines once again took center stage. Today, I’m gonna discuss what happened in the markets, what drove those moves, what concerns us right now, and finally, what we’re watching next. So let’s go ahead and start with the market backdrop. US equities once again have had a strong start to the week with S&P 500 hitting an all time high on Wednesday, as as mentioned before pulling back slightly.

For the month of May, the S&P is up around 1.8%. The Nasdaq is up roughly 4.1% after following a very, very strong month in April, reflecting the continued strength and growth in particularly AI related names. International stocks have also performed quite well. Developed international stocks are up around 1.94% this month, while emerging markets outperformed again, and they’re up more than 6% this month, continuing their strong run year to date, particularly driven by strength out of South Korea and Taiwan stocks.

Now if we look beneath the surface, there’s still a lot of volatility, in particular oil, which we’re gonna talk about in just a minute. But I wanna first highlight a few other things. Fixed income has been relatively flat, but yields have been bouncing around a little bit. Most recently, the 10-year yield dipped earlier in the week and reversed higher, is now around 4.4% reflecting some uncertainty around inflation and policy.

Meanwhile, gold has extended hefty gains now trading above $4,700 per ounce after jumping 3% on Wednesday for its biggest daily advance since late March. So let’s now talk a little bit about oil, which again has been probably the driving force behind the markets over the last, call it, month or or two. It’s really become the central transmission channel for markets as every headline around a potential ceasefire or escalation or reopening of the Strait of Hormuz has led to sharp moves in crude prices. So oil has been whipsawing significantly.

We noted that WTI crude oil moved from above $106 earlier in earlier in the week to below $95 and settled closer to ninety six on Thursday.

Meanwhile, Brent has followed a similar pattern moving from above $115 earlier in the week to around $100 by the end of Thursday. This has created a very headline driven environment where markets are constantly repricing the probability of either a prolonged supply disruption or a relatively quick resolution. And of course, that matters because oil feeds directly into inflation expectations, consumer spending and corporate margins. And of course, it impacts what the Fed might do next, which we’re gonna talk about in just a bit.

But before that, I wanna talk about the other key force driving the markets, and that’s earnings. We are about three quarters of the way through Q1 earnings season, and so far it’s been very, very strong. Of those companies, the S&P 500 that have reported thus far, the average earnings growth rate is around 27%, which if we end that high, it would be the highest earnings growth rate reported by the index since the fourth quarter of 2021. And now it’s really been driven by just a few stocks, I should say.

It there we’ve seen broad growth overall, but the pronounced growth has really come from just a few MAG 7 stocks, in particular Alphabet, Amazon and Meta, which were by far the largest contributors to the earnings and the growth rate for Q1. Combined, those three companies accounted for 71% of the net dollar level increase in earnings for the S&P 500. A lot of that, of course, is related to AI and AI spending, which, as we mentioned, remains a major theme, particularly spending on AI infrastructure just continues to accelerate with hyperscalers projected to spend hundreds of billions this year.

In fact, the latest number I’ve seen is that hyper-scalers are projected to spend roughly $770 billion in CapEx for the fiscal year 2026, really has been driving the markets. Now shifting gears to what we’re what we’re concerned about, it’s really higher inflation for longer.

Various sources note that executives are worried about US shoppers with tighter budgets amid surging gas prices caused by the conflict in the Middle East, that rising fuel costs are impacting especially low income consumers who are dipping into savings and then have less money for discretionary spending, things like eating out. And Americans are certainly putting less money in a way. So we’re seeing the savings rate go down as Americans change their spending patterns to balance their budgets, and they’re gonna have to continue to adjust that if gas prices stay higher for longer. Most recently, prices are on the rise again. As as everyone out there knows, the average gallon of gas is now $4.56 per gallon, which is the highest level it’s been since 2022.

Saving rates are falling sentiment has certainly weakened. And it’s not just spenders or consumers, it’s business owners that are impacted as well.

So business owners are certainly reeling from the war’s impacts, which the conflict has led to soaring diesel prices. It’s led to fertilizer shortages and travel disruptions as well, all affecting industries and supply chains worldwide.

And of course, that impacts inflation across food, fuel and other essentials.

Businesses and individuals around the world just continue to feel the heat with some struggling to cope with the higher costs, reduced demand, disrupted operations, and many out there are just bracing for an upcoming season of discontent, as we all wonder just how much longer this could continue. And that creates a dilemma for the Fed. So that’s the other thing that we’re really monitoring right now because there’s a lot of uncertainty right now about the future path of Fed policy. If you recall at the start of this year, most practitioners were expecting roughly two to three rate cuts to start the year.

That sentiment has certainly changed. Fed officials have recently indicated that if oil remains elevated and inflation expectations rise, the next move is certainly much less clear. We could even potentially see a rate hike instead of easing. Now that is not our base case right now, but we are in a situation where the market had been pricing rate cuts, but now energy volatility just continues to introduce a lot of uncertainty.

And that uncertainty is what’s driving a lot of the movements in rate and risk assets.

Looking forward on Friday, the next key economic release is the Friday jobs report. By the time you see this video, we may have already announced that, but expectations are for around 65,000 to be added, down from 178,000 in March, which was a very strong number. And we expect the unemployment rate to hold around 4.3%. Now, why does this report matter?

Well, if the number comes in stronger than expected, it reinforces the idea of a resilient economy. It also gives the Fed more flexibility to stay patient and it could support higher yields. However, if it comes in weaker, it definitely strengthens the case for rate cuts later this year, but it also raises concerns about growth, especially given rising energy costs. So to summarize, markets are definitely being driven by two main forces right now.

First, the volatility of oil, which stems from the geopolitical concerns around Iran. So the volatility of oil and energy sources. And then on the flip side, the fundamental strength comes from the strong but evolving earnings because not all sectors are benefiting as much as those tech sectors.

Higher energy prices and policy uncertainty are creating new risks for inflation and growth. And we’re gonna have to keep a close eye on what happens next in the labor market. But just to remember, volatility is part of the process.

It’s normal. The key is staying focused on fundamentals and not overreacting to short term headlines. That’s it for today. Thank you for joining us. We’ll see you next time on 7 Market Movers.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor’s specific circumstances.

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