Record Margins,
Profits Still Matter

U.S. Futures & World Markets

US equity futures are higher premarket as oil prices have drifted lower. With no further escalation in the Strait of Hormuz, the market is sticking with the glass-half-full view.

Earnings season keeps chugging along, with nearly 70% of S&P 500 companies reporting. The Q1 blended growth rate currently sits at 27.5% — an impressive number that explains the recent rally off the lows. The US economy has held up better than expected even with higher oil prices, helping ease near-term inflation and stagflation concerns.

Tech and Mag 7 names are driving the bus. Commentary from tech companies has largely validated the current wave of AI spending. Investors want to see a return on that investment, and for now the market is comfortable with the earnings growth trajectory. This stat from JPMorgan sums up the broader picture:

CORE Headlines

• Maersk commercial vessel transited through the Strait of Hormuz under U.S. Navy escort. — CNBC
• President Trump has not yet declared Iran in violation of the ceasefire. The Pentagon and Secretary of State Rubio both held press conferences. — WSJ
• OpenAI once considered spinning out its robotics and consumer hardware units. — WSJ
• Apple is considering using Intel and Samsung to construct main device chips in the U.S. — Bloomberg
• Apple is developing a feature that will allow users to build their own digital tickets and gift cards. — Bloomberg
• Meta is working on data center financing for its El Paso, TX center. — Bloomberg
• South Korea is considering joining the U.S. effort to guide ships through the Strait of Hormuz. — CNN
• UnitedHealth is eliminating authorization requirements for 30% of healthcare services that previously required insurer approval.
• U.S. Attorney Pirro asked U.S. District Court to vacate the opinions and orders in the case against Fed Chair Jerome Powell. — CNBC
• The White House is weighing a new government review process for AI tools deemed to pose cybersecurity risks. — WSJ
• A Ukrainian drone struck a luxury residential complex in Moscow, underlining Kyiv's ability to reach into Russia's heartland. — WSJ

Charts & Data

Goldman sentiment indicator at highest since late 2024. Goldman Sachs via Daily Chartbook: "Our Sentiment Indicator rose to 1.7 this week, the highest level since late 2024 but still well below previous extremes. The increase was lifted by passive equity fund inflows and a decline in mutual fund cash balances."

Elevated sentiment — watch your step. Goldman Sachs via Daily Chartbook: "The current level has typically signaled below-average subsequent equity market returns. Since the GFC, readings between 1.5 and 2 have preceded 1-month S&P 500 returns averaging -0.4%."

Equity positioning still has room to run. Deutsche Bank via Daily Chartbook: "Equity positioning sits at the 53rd percentile, tipping into modest overweight territory while keeping dry powder for further upside. The backdrop remains supportive."

Hedge funds at record-low US equity exposure vs. global. Brian Garrett, Goldman Sachs via Daily Chartbook: "Hedge fund exposure to North American equities relative to ACWI is at the lowest levels on record."

Hedge funds selling tech while retail buys. @jasongoepfert via Daily Chartbook: "The 2nd-largest hedge fund selling in tech in a decade meets the 3rd-largest retail fund flow into QQQ. Who's the smart money?"

Buybacks surging despite capex concerns. Deutsche Bank via Daily Chartbook: "Despite capex-related concerns, buyback announcements continue to surge higher." A nice tailwind for shareholders.

Tech stretched above 10-week moving average. Andrew Thrasher, Thrasher Analytics via Daily Chartbook: "The Nasdaq 100 and the Technology sector are now 10% and 11.22% above the 10-week moving average. These levels don't get hit very often. Historically, some kind of pullback has often followed in the ensuing weeks."

Volatility higher on up days than down days — unusual. Mandy Xu, Cboe via Daily Chartbook: "Since the Iran War started, the market has been more volatile on up days than down days (SPX realized vol of 16.9% on up days vs. 14.6% on down days) — extremely unusual. It suggests investors were well-hedged coming into March and it's the rally higher that's caught people off guard."

5 down weeks, then 5 up weeks — only happened 5 times since 1950. Bespoke via Daily Chartbook: "There have only been five other periods when a five-week winning streak came immediately after a streak of at least five weeks of losses. The last one was way back in 1982."

Sector valuation anomaly. Goldman Sachs via Daily Chartbook: "Industrials now 3 figures pricier than Tech." Worth monitoring as the rotation continues.

The most important chart of the day: hyperscaler balance sheets are rock solid. Michael Cembalest, JPMorgan via Daily Chartbook: "If we use net debt to EBITDA as a proxy for borrowing capacity, Oracle is the only one of the Big 5 whose ratio exceeds the median S&P 500 company. That's probably why hyperscaler credit spreads are still rangebound at investment grade levels." This is not debt-financed speculation.

Interesting Reads

• World Cup hotel bookings are running far below projections — NPR. FIFA is a joke.
• Kentucky Derby times haven't gotten any faster since the 1960s — X
• What Makes Art Great? — Nabeel Qureshi

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