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Received this email this morning. Kind of makes sense to me but I can poke some holes in the explanations. What do you guys think of this…?
Good morning,
**1. Iran Fired on Commercial Ships Over the Weekend and Oil Is Responding**
Futures are opening down about half a percent this morning after Iran fired on two commercial vessels transiting the Strait of Hormuz over the weekend. The U.S. responded by seizing an Iranian cargo ship, representing a meaningful escalation from the cautious optimism we ended last week with. WTI is up almost 5% this morning and trading around $87.80, recouping much of Friday's collapse after the Strait was briefly declared open. The good news, if you can call it that, is that ceasefire talks between the two sides are still reportedly scheduled for Tuesday, which tells you both parties still have enough interest in a deal to keep the diplomatic channel open despite the weekend's military actions. This is exactly the kind of whipsaw headline risk that has defined this market for the past several weeks and reinforces why staying defensively positioned remains the right call even with the S&P 500 sitting near all-time highs.
**2. Last Week Was One for the Record Books**
Before we get too deep into this morning's negativity it is worth acknowledging what just happened, because a 4.55% weekly gain for the S&P 500 is not something you see very often. The index finished the week up 4.47% year to date on a total return basis after spending most of the first quarter in the red, and it did so in the face of an active military conflict, elevated oil prices, and unresolved inflation concerns. The drivers were a combination of ceasefire progress, better than feared inflation data, blowout regional manufacturing surveys, and strong bank earnings that offered no serious red flags on the consumer or private credit front. The honest question going into this week is whether any of those tailwinds are durable enough to hold the market at current levels, or whether we are looking at the last stage of a short squeeze that eventually runs out of fuel.
**3. Here Is Why the Market Is at All-Time Highs Despite Everything**
I have gotten some version of this question from clients over the past week, and I think it deserves a direct answer. The primary reason stocks are at all-time highs is not that everything is great, it is that the worst-case scenario, which was oil surging toward $200 per barrel on an extended conflict destroying Gulf infrastructure, has been largely taken off the table. Whether WTI is at $85 or $65 does not move the needle much for corporate earnings, but $200 oil would have been an economy-ending event, and the market is simply relieved that path appears closed. On top of that, Q1 earnings are coming in strong, economic growth is holding up better than feared, and funds that got too defensively positioned too quickly were forced to chase the market higher as the worst cases did not materialize. That chasing dynamic is a technical rather than fundamental driver, and it is worth keeping in mind that a market held up partly by forced buying is more fragile than one driven by genuine fundamental improvement.
**4. The S&P 500 Is Trading at a Stretched Valuation Right Here**
With the S&P 500 now trading above a 23x multiple based on 2026 earnings estimates of around $305, we are well above the historical ceiling of roughly 22 times that has traditionally acted as a valuation speed limit. I am not saying the market must sell off immediately just because it is expensive. Expensive markets can stay expensive for a long time, but I do think it is important for clients to understand that at current levels the index is essentially pricing in a scenario where everything works out. The ceasefire finalizes cleanly, stagflation fears prove overblown, earnings hold, and the Fed eventually cuts. That is a lot of optimism stacked on top of each other in an environment where one bad weekend headline just sent oil up 5% before the opening bell. Some retracement of the recent move would not surprise me and would actually be healthy.
**5. WTI Just Broke Below a Critical Technical Level and Then Bounced Back**
Friday's nearly 10% collapse in WTI was the big commodity story of last week, and the fact that the close came below the March 23 settlement low of $88.13 technically shifted the oil trend from neutral to bearish on the charts. That same $88.13 level is now acting as resistance on the upside rather than support on the downside, meaning this morning's bounce back above that mark is going to be a critical test of whether oil can reclaim its prior range or whether the bears stay in control. The technical framework now puts key support for WTI in the $80 to $75 range on the downside and resistance at $88 to $99 on the upside. The fundamental backdrop remains driven almost entirely by headlines out of the Strait, and with Tuesday's ceasefire talks still on the calendar, expect significant volatility in crude through at least midweek.
**6. Silver Had a Big Week and Is Worth Watching**
Silver gained 3.82% last week to close at $81.72, outperforming gold's solid 2.02% gain and briefly touching levels that put it among the stronger performing assets of the entire conflict period. The metal benefited from the same combination that lifted gold, namely a weaker dollar, falling Treasury yields, and improving risk sentiment as the ceasefire narrative gained traction. Silver's dual role as both a precious and industrial metal gives it a leverage advantage over gold in risk-on environments, and last week was a textbook example of that dynamic playing out. The longer-term setup for silver remains constructive given elevated energy prices, a structurally softer dollar, and robust industrial demand from the energy transition space, and I continue to think it deserves a place in client portfolios as a commodity hedge.
**7. Gold Is Testing a Major Resistance Level This Morning**
Gold is trading around $4,845 this morning as this morning's oil spike and associated risk-off move creates some cross-current pressure, but the precious metal finished last week in genuinely constructive technical shape after making multiple tests of the $4,900 resistance level. The near-term trend has shifted back to moderately bullish with key resistance sitting in the $4,906 to $5,079 range and support down around $4,552 to $4,402. The $5,000 psychological level remains the big number that would represent a true breakout and get broader attention from investors who are not currently positioned in gold. Getting through $5,000 cleanly will likely require either a sustained drop in the 10-year yield toward 4% or a fresh escalation in the geopolitical situation, both of which remain possible given what we woke up to this morning.
**8. Grains Are Getting a Quiet Tailwind from This Morning's Oil Move**
I want to flag the grain complex this morning because the dynamics are worth understanding heading into planting season. This morning's 5% jump in WTI has a direct pass-through effect on agricultural production costs, as diesel prices move almost in lockstep with crude and diesel powers virtually every piece of equipment that touches a corn or soybean field from tillage through harvest. Fertilizer costs, which are heavily energy-dependent, also reset higher when oil spikes, and we are now in the window when farmers are locking in input costs for the 2026 crop. The DBA grains ETF closed last week down modestly at $26.92 but the cost-of-production floor argument for corn and soybeans is getting reinforced every time oil rips higher, and a sustained return to the mid-$90s range in WTI would be a legitimate upside catalyst for new crop prices heading into the summer months.
**9. The Bond Market Is Still Not Fully Buying the Stock Rally**
The 10-year Treasury yield sits at 4.26% this morning and despite falling 10 basis points last week alongside Friday's oil collapse, it remains meaningfully elevated compared to pre-war levels that were closer to the high 3% range. That persistent elevation is the bond market quietly telling equity investors that the inflation story is not over and that the Fed is unlikely to be cutting rates aggressively anytime soon regardless of what stocks are doing. The Sevens Report framework is clear on this point: a 10-year yield near 4.25% is not a problem for stocks, but it is also not the confirmation that the stock rally is on completely solid footing. The level to watch on the upside is 4.34% to 4.44%, which is where yields start to become a genuine headwind for valuations, and this morning's oil move is exactly the kind of catalyst that could push yields back toward that range if it sustains.
**10. What to Watch This Week**
There are no economic reports today, but the week picks up meaningfully from here. Tomorrow's Retail Sales report is the most important near-term read on whether higher gas prices are hurting the consumer, and the number to focus on is the Control reading which strips out gas, autos, and building materials to give a clean look at discretionary spending. Thursday's April flash PMIs are the marquee event of the week as the first national economic report of the month, and markets will be watching those price subindices very closely after the alarming jumps we saw in both the Empire and Philly surveys last week. On the geopolitical front, Tuesday's ceasefire talks between the U.S. and Iran are arguably the most important event of the entire week regardless of what the economic calendar says, because a breakdown there could send oil back above $100 and reset the entire market narrative in a matter of hours.
Best,
Bill Dixon | Senior Market Strategist