James Brodie
Head of Learning & Development, Flux
Risk Assets Rally, Crude Drags Inflation Expectations
Stocks hit record highs as earnings, easing oil and softer Fed expectations align, but markets remain vulnerable if growth or oil reverses.
Risk Assets Surge on Earnings, Oil, and the Economy.
Risk assets are rallying because three narratives have aligned: stronger earnings, easing energy prices and a softer short-end rates outlook. Yesterday's earnings from Caterpillar and Palantir, together with Treasury Secretary Scott Bessent's comments suggesting a Hormuz reopening deal could be close, helped push the S&P 500 to fresh all-time highs (Chart 1, Bloomberg), with the Dow joining European and UK indices at record levels.
The S&P is up almost 6% in 4 sessions. Per BTIG's Brian Krinsky, a 5%+ 4-day surge has only happened 3 times before - 1999, 2000, and November 2020. The Nasdaq 100 is up ~9.3% over the same stretch, ranking among Tech's sharpest 4-day rebounds around major shocks of the past two decades - GFC, Covid, the 2022 hiking cycle, Liberation Day.
The mechanism tying it together: falling crude is dragging short-term inflation expectations lower - 1-year inflation swaps at new cycle lows, 2-year yields breaking trendline support, and OIS no longer pricing a Fed hike next month. That's the liquidity backdrop letting equities run.
Underneath it, the economy isn’t rolling over. Yesterday's data: trade deficit narrows, exports hold, JOLTS openings stay elevated with contained quits and layoffs, and factory/capex orders improve. Growth and jobs still intact.
Other moves:
- Chinese Yuan hits a 42-month high vs. the dollar
- Palantir's best day since April 2025, +29%
- AMD falls over -10% despite beating on earnings and guidance
- SpaceX shares down almost 9% after hours post-earnings
- KOSPI surged +4.8%, triggering a 5-minute program buying halt
- Bank of Korea buying physical gold for the first time in 13 years, as gold breaks higher from consolidation (Chart 2, Bloomberg)
- Copper above $14,000, partly an AI demand-side story
- Token prices in historic freefall as compute shifts to cheaper Chinese models (Chart 3, Bloomberg)
For now, earnings, macro data and easing inflation expectations are reinforcing one another. The question is whether that alignment can survive if growth slows or oil stops falling.
What could derail this risk-on surge?
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