- The S&P 500 Index (SPX:US) closed above 7,000 points for the first time this week, having rebounded 11% from its March 30 low. According to historical data models by Bespoke Investment Group, this index regained 5% to 10% of its pullback and reached a new high within 11 trading days, a first since 1928. The Nasdaq Composite Index (IXIC:US) recorded 12 consecutive days of gains, marking the longest winning streak since 2009.
- The core pricing logic of the market is shifting from geopolitical risks to corporate fundamentals. Data from the London Stock Exchange Group (LSEG) shows that S&P 500 component stocks are expected to see earnings growth of about 14% year-on-year in the first quarter. Nearly one-fifth of these component companies will disclose their earnings in the next week, with major companies like Tesla (TSLA:US) and Boeing (BA:US) becoming key indicators for validating current valuation levels.
- Macroeconomic liquidity expectations are under significant reassessment. U.S. oil futures (CL1!:US) remain at a high level around $94 per barrel, rising notably from the pre-conflict level of $67. Elevated energy costs, combined with the upcoming U.S. Federal Reserve Chair nomination hearing, are resonating in the market, with federal funds futures having largely ruled out rate cut expectations for the year.
Earnings Expectation Verification and Valuation Recovery
As geopolitical tensions in the Middle East ease marginally, U.S. equity assets have undergone a highly resilient valuation recovery. Large tech stocks, such as Alphabet (GOOG:US) and Meta Platforms (META:US), which were under pressure during the pullback, have shown strong relative performance in the recent rebound. Horizon Investment Services notes that investor focus has substantively shifted toward corporate earnings and their ability to withstand macroeconomic headwinds. Initial reports from the banking sector showed growth in trading business income and the resilience of consumer balance sheets, providing initial support to the broader market. Should the subsequent capital spending plans and earnings guidance of tech giants meet market expectations, it will provide a solid fundamental base for market consolidation in the high range.
Energy Premium's Squeeze Effect on Consumption
Although the equity market sentiment has moved past the short-term shadows of geopolitical conflict, physical pricing in the commodity market continues to exert pressure on the real economy. Currently, U.S. domestic gasoline prices have climbed to nearly $4 per gallon. This cost increase, driven by energy supply constraints, is impacting disposable income for households. Dakota Wealth's research team believes that the persistent high energy prices have a sticky nature, and their negative impact on discretionary consumer spending will gradually become apparent in forthcoming macroeconomic data. Market participants should closely monitor the upcoming March retail sales data to assess the real economy's threshold for enduring the dual constraints of high inflation and high interest rates.
Monetary Policy Path and Risk-Free Rate Dynamics
The evolution of the macroeconomic liquidity environment remains a core variable in determining the trajectory of U.S. stocks in the latter half of the year. Next week, the U.S. President's nominee for the Federal Reserve Chair, Waller, will attend a congressional hearing. Against the backdrop of inflation expectations rebounding due to geopolitical conflicts, the market will be highly focused on his policy stances regarding the long-term neutral rate level and the pace of balance sheet normalization. Boston Partners' global market research department warns that persistently high oil prices could push long-term inflation breakevens higher, further steepening the U.S. Treasury yield curve. If the central risk-free rates effectively rise, the current high P/E ratios of tech stocks may face mean reversion pressures, potentially causing a phase of fund flows towards sectors with stable cash flows and high-dividend defensive attributes.
