Oil surged, and so did the markets

@THEMARKET

It seems you can’t keep a good market down. Oh, the bears tried, but equities managed another up week of record highs even as oil prices surpassed $100/bbl.

The market’s gains were helped by some mega-cap stocks that blew out earnings expectations (two exceptions: Meta and Microsoft).

Big tech certainly delivered, sending markets higher on a day when oil hit $108/bbl.

And the Fed chair’s swan song turned out to be anything but — at least for the president.

On Wednesday, Jerome Powell, the outgoing Chair-man of the Federal Reserve, first announced that "nothing done" regarding interest rates. However, during the Q&A session, he told financial markets that he would not be stepping down from his position on May 15 as previously expected.

He explained that political pressure was "battering" the institution, influencing his decision to stay.

It was almost comical, given the pressure on the Fed and its officials over the past year, to watch the president and his henchmen huff and puff at how this was an unorthodox position, and so political, etc., etc. The news was just a warm-up for what I see changing in the staid Federal Reserve Bank’s future.

For example, the dissension among Fed board members at this week’s meeting was the greatest since 1992. Four dissenting members (the Trump appointees) wanted further interest rate cuts, while the rest leaned toward holding rates steady; three dissented because they did not support the FOMC’s easing bias in the statement.

Powell will remain a board governor and voting member for the foreseeable future. So, with Powell and others ready to "batter" back against any further politicization of the Fed, the new chair, Keven Warsh’s job could be problematic. The divisions could also lead to greater volatility in financial markets, making FOMC meetings and policy far less predictable.

The latest data from the Fed’s key Personal Consumer Expenditures Index highlighted the need for an independent Fed as inflation expectations reignited. In March, PCE prices rose by 0.7 percent, the sharpest monthly increase since June 2022. Goods prices climbed 1.4 percent, mainly due to a 20.9 percent surge in gasoline and other energy goods.

In addition, the U.S. first-quarter 2026 GDP growth, a measure of the country’s economy, expanded at an annualized rate of 2.0 percent, up from the previous quarter’s 0.5 percent. Be cynical of government data.

There is a tendency by the government to present the economy’s best foot forward on their first estimate of quarterly GDP, only to revise downward the numbers later.

As investors try to stay focused on big tech, AI plays, and earnings, we are closing out the ninth week of a war that, it seems, nobody but the president wanted. It has gone on far longer than promised, with the annihilation of Iran’s military capabilities greatly exaggerated. There doesn’t seem to be any offramp.

The president continues to try to cow the Iranian Revolutionary Guard into submission with social media posts of death and destruction. These are followed by further extensions of a ceasefire based on nonexistent peace talks. In the meantime, the Strait of Hormuz remain closed, oil climbs higher (up 75 percent since Feb. 28), OPEC is on the ropes, and the polls, well, the polls say it all. The midterms are approaching, and nobody’s happy.

The equation is quite simple. Rising oil price = higher inflation = higher-for-longer interest rates. And yet, we are at all-time highs. April was the best one-month return for the S&P 500 Index since November 2020, roughly a 13.6 percent gain. The Nasdaq and small-cap Russell Index gained even more. Are we overbought and extended? Yes. Are markets in nosebleed territory? Yes.

Given that the oil/Iran story is getting worse and is beginning to impact the world economies, why are markets celebrating? They believe that everything will come out all right in the end. The war will be over, or, if not, higher oil prices will surely slow economies, which in turn will reduce inflation growth, allowing the Fed to cut interest rates.

In the meantime, earnings have been stellar over this last quarter, so why complain? As for the future, we will worry about it when it gets here. Short-sighted?

Uh-huh, welcome to the nature of the new market.

Bill Schmick is registered as an investment adviser representative of Onota Partners Inc. in the Berkshires. His website is schmicksretiredinvestor.com. He can be reached at 413-347-2401, or email him at [email protected].

Traders work on the floor of the New York Stock Exchange during morning trading on Friday in New York City. Stocks began the month of May on the rise a day after the Dow Jones closed off April up 800 points helping to give the market one of the strongest months of the year.MICHAEL M. SANTIAGO GETTY IMAGES Bill Schmick@theMarket