Bloomberg Surveillance 4/10/2026
Speakers
Summary
- Market resilience vs. structural concerns: The equity market has been "battle tested" through the Middle East conflict, with a relief rally on ceasefire hopes. However, a primary overhang remains the unproven return on massive AI capex from Big Tech companies, seen as a bigger issue than the immediate Iran war.
- Inflation and Fed outlook: The March CPI (headline +0.9%, core +0.2%) captured the initial oil shock. The Fed is seen in "hibernation mode," focused on policing whether the energy shock seeps into core inflation and inflation expectations. A pivot to cuts requires either weak economic data or a convincing argument from a new Fed Chair (Kevin Warsh) incorporating forward-looking AI-driven disinflation.
- Skepticism on Iran deal viability: The U.S.-Iran talks are viewed as a low-expectation event. The "maximum Iran is willing to offer does not meet the minimum of what President Trump is requiring," with core demands like sovereignty over the Strait of Hormuz being a non-starter for the U.S. and Israel.
- Strait of Hormuz remains a chokepoint: Despite the ceasefire, transit through the strait is minimal and controlled by Iran, which is reportedly charging tolls. The physical reality of blocked flows is disconnected from futures pricing, creating a "scarcity premium."
- Oil market disconnect and risks: Paper futures (~$98) underprice physical reality. Risks include attacks on critical infrastructure (e.g., Saudi Arabia's East-West pipeline) and the structural possibility that Iran retains coercive control over the strait for years, embedding a lasting risk premium. A base case sees Brent reaching $120-$130/bbl.
- Consumer and earnings resilience: Bank of America data shows consumer spending picked up sharply in March, weathering the initial energy price shock with help from tax refunds and wage growth. Forward earnings revisions for the S&P 500 remain positive (+2.5% YTD), driven by Tech and Energy.
- Sector and positioning nuances: The market rally is not "clean"; software stocks fell alongside energy post-ceasefire, suggesting idiosyncratic positioning and lingering AI disruption fears rather than pure macro moves. Small caps have recently outperformed.
- Private credit scrutiny ahead of bank earnings: A key focus for upcoming Q1 bank reports is the spillover risk from private credit, though banks are structured to be senior and protected, requiring significant equity loss first before they take a hit.
- Confirmation hurdles for Kevin Warsh: Warsh's confirmation as Fed Chair is "looking dicey," with the DOJ investigation unresolved. It is increasingly likely Jerome Powell stays on past May 16 for a period of months.
Trade Ideas
The market is flat YTD despite an 8% rise in forward earnings, compressing P/Es. The real overhang is the unproven ROI from historic Big Tech AI capex. Geopolitical risk is "a problem more of the bond market" if earnings continue to grow at the index level. Earnings fundamentals are healthy, but multiple compression in mega-cap tech will persist until AI spending demonstrates high-margin returns. Broader index earnings should be okay, but the market lacks a catalyst to re-rate higher without clarity on AI profitability. WATCH because the market is in a holding pattern—neither cheap nor expensive—with a major unresolved fundamental question (AI returns) that prevents a clear bullish or bearish call. A sharp downturn in broad earnings growth due to an oil-induced consumer slowdown would invalidate the "earnings are okay" premise and turn the view bearish.
The backup in Treasury yields has been driven by a repricing of Fed policy, not long-term inflation expectations. To get yields back down, you need the Fed policy pivot to return to its February trajectory, which requires either really bad economic data or a new Fed Chair convincing colleagues to cut. The Fed is on hold, policing the oil inflation shock. Bonds are attractive in theory if the shock is transitory, but the near-term path to lower yields is blocked without a dovish catalyst from data or leadership. WATCH because bonds are at elevated yields with a logical long-term value case, but the tactical setup lacks a clear near-term catalyst for a rally. The oil shock proves persistent and contaminates core inflation/wage expectations, forcing the Fed to maintain a hawkish stance longer, pushing yields higher.
The price of oil "does not reflect the reality on the ground." Physical damage to infrastructure will take months to repair, and a backlog of ships will take at least a month to clear. If the Iranian regime remains in power, the risk of it blocking the strait will hang over the market for years, demanding a lasting risk premium. The paper futures market is discounting a swift return to normalcy, but the physical market and structural geopolitical reality imply sustained scarcity and higher costs. A true, durable reopening of the Strait of Hormuz is not imminent. LONG because there is a fundamental disconnect between futures pricing and the physical/geopolitical supply reality, which must converge higher. A swift and credible diplomatic resolution where Iran fully relinquishes control of the strait, allowing rapid normalization of flows.
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