U.S. Futures & World Markets

Stocks are flat premarket, taking a well-deserved breather after yesterday's monster rally. Meanwhile, oil prices continue to move lower — down 2.6% today after falling 5% yesterday. Oil down, stocks up.

I'm sure new Fed Chair Kevin Warsh is relieved to see oil prices tumbling ahead of his first Fed meeting tomorrow. There is typically a bit of market angst around a new Fed Chair, but bond markets have been surprisingly calm — and the bond market drives the bus.

There are some interesting charts below, but the three earnings charts stand out. If you're wondering how the market has rallied so hard this year and managed to climb the wall of worry, look no further than earnings growth, all while valuations have actually contracted.

Sometimes we tend to overcomplicate things. Geopolitics, tariffs, Fed meetings, inflation reports, and whatever headline is flashing across CNBC at the moment all matter. But at the end of the day, only two things move stocks: earnings and interest rates. Right now, earnings are doing their job.

S&P Futures vs. Fair Value: Flat  |  10-Year Yield: 4.45%

CORE Headlines

Charts & Data

Rally broadening out — Jonathan Krinsky (BTIG) on what he's seeing technically. A chart showing the rally finally expanding beyond the handful of mega-cap AI names that have carried the market. Breadth broadening is the key ingredient the bull case needed.

Tech + tech-related stocks now close to two-thirds of US total market cap. Callum Thomas: "Meanwhile defensives are phasing out to obscurity, and traditional cyclicals — materials, industrials, energy, financials — are likewise languishing." The most concentrated market structure in modern history.

Most important chart of the day: US ex-Tech & AI is still down from a few months ago even as earnings grew. HSBC via Daily Chartbook: "The US index ex Tech and AI is still down from a few months ago while earnings have continued to grow there." This is the opportunity hiding inside the concentration narrative — the rest of the market is cheap relative to its own fundamentals.

Discretionary investor positioning fell from modestly overweight to notably underweight — bottom of 15-month range. Deutsche Bank via Daily Chartbook: the positioning reset during the recent volatility was real and sharp. Light positioning is fuel for the next leg higher.

Large-cap Tech positioning unwound from 97th percentile to 48th percentile in the recent selloff. Deutsche Bank via Daily Chartbook: the crowded tech trade got meaningfully cleaner. The setup for the next tech rally is better than it was three weeks ago.

Tiny options traders hedging at one of the highest proportions in 25 years. @jasongoepfert via Daily Chartbook: "One of the highest proportions of hedging activity in 25 years." Extreme retail hedging at a market low is a classic contra-indicator.

Substantial US short covering last week — "some fuel has already been consumed." Rich Privorotsky, Goldman Sachs via Daily Chartbook: the short-covering that drove part of yesterday's rally has already happened. The next leg up will need new longs, not just covering shorts.

Hedge funds buying Financials for 3rd straight week — still only in 9th percentile of historical exposure. Goldman Sachs via Daily Chartbook: "Financials gross and net exposures are still low vs. history." The most under-owned major sector in the market, with momentum turning positive.

Stocks up + oil down: historically positive 8 of 9 times three weeks later, median gain 4.6%. @bluekurtic via Daily Chartbook: "For only the 10th time since 2006, the S&P 500 and Nasdaq 100 both gapped up more than 1% while USO gapped down over 2% at the open." The setup from yesterday's session has a strong historical precedent.

Forward earnings of S&P 400 MidCap and S&P 600 SmallCap rocketing to new highs along with S&P 500. Yardeni Research via Daily Chartbook: the earnings expansion isn't just a large-cap phenomenon. Mid and small caps are seeing the same fundamental improvement — which is why the Russell 2000 is finally breaking out.

Eight of eleven sectors have seen multiples compress this year — all eleven have seen earnings growth. Duality Research via Daily Chartbook: the simplest bull case in a single data point. The market is getting cheaper even as earnings grow. That's not a bubble; that's a foundation.

Interesting Reads

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This content does not constitute legal, tax, accounting, or other professional expert advice. Everything published is believed to be reliable, but its accuracy or completeness is not assured. Past performance does not indicate future results. The opinions expressed herein are subject to change without notice and are solely those of the author as of the date indicated.