Stocks At Records Again – And “Historic” Barely Covers It

Stocks jumped on Friday as oil prices cratered following Iran’s announcement of the reopening of the Strait of Hormuz passage, with all key stock indexes surging into the green for the year to date. Although other factions of the country’s regime sent a different message the following day, the market seems to be firmly set on optimism, reflected by the futures that are flashing green for Monday’s open.

The Dow (DJIA) rose 3.19% last week, reaching within 1.5% of its February peak. Meanwhile, the S&P 500 (SPX) advanced 4.54% and the Nasdaq-100 (NDX) surged 6.20%, hitting record highs for three days in a row, supported by a surge in technology and growth stocks. All three large-cap benchmarks closed in the green for the third consecutive week, which propelled the SPX and the NDX into overbought territory and the DJIA near overbought conditions.     

Stocks were also supported by a strong start to the earnings season, with major U.S. financials – including JPMorgan (JPM), Bank of America (BAC), Morgan Stanley (MS), Goldman Sachs (GS) – all beating expectations. That provided a positive early tone to earnings season, helping lift overall sentiment and sustain the rally.

Now, as the focus shifts to technology majors, expectations are running hot. Analysts expect the tech sector’s earnings growth to soar about 45% year-over-year, strengthening its role as by far the biggest contributor to overall S&P 500 profit expansion. The tech earnings avalanche is officially beginning this coming Wednesday with the first member of the “Magnificent Seven” (MAGS) to release its results, Tesla (TSLA), which is slated for approximately 30% earnings growth despite wobbly delivery numbers.

The tech-stock optimism has recently received a helping nudge higher from a credible source. Taiwan Semiconductor Manufacturing, aka TSMC (TSM) – the world’s leading chip foundry – reported record Q1 sales and earnings growth and lifted its full-year outlook, citing insatiable AI infrastructure demand. Since TSMC is basically a monopoly in terms of the most advanced chips, its results and guidance are seen as a bellwether for the AI trade as a whole. The soaring demand for TSMC’s offerings boosted the momentum, helping the technology sector (XLK) notch 13 straight positive trading days – the longest such stretch since 2013 – with a 20%+ advance over the period.

The Magnificent bunch added about $2.5 trillion in market cap over the last eight trading days. However, they were far from the strongest performers among large caps. The champion last week was Oracle (ORCL), which surged nearly 30%. Although ORCL’s rally was driven by concrete progress on power constraints and cloud partnerships – validating its heavy AI capex bets – it would likely be far less spectacular had the broad market not been in a somewhat extreme risk-on mood.

And that is exactly why caution is warranted. When stocks stage a blistering rally not from the depth of a bear market – not even from a proper deep correction – but from a place where they still could have been considered overvalued, this could signal decoupling from fundamentals – this time, in the green rather than red direction. Importantly, the primary catalyst for the rally was the ceasefire and hopes for a lasting agreement between the U.S. and Iran, which could drive normalization of global oil prices. If these hopes are shattered – or even postponed – the rally could reverse in the blink of an eye.