Markets Cling to a Slippery Off-Ramp

U.S. earnings in focus as geopolitical signals remain mixed and foggy.

Key Takeaways

• Markets Leaning on a Slippery Off-Ramp: Equities are treating the ceasefire and the absence of a worst-case oil shock as enough to keep the rally alive, even though the geopolitical situation remains unresolved and valuations look stretched relative to the risks still in play.

• Upstream Strength, Downstream Strain: U.S. corporate earnings are holding up better than many expected. Even GE Aerospace showed that commercial demand can still offset fuel and conflict pressures amid a global oil price shock. Meanwhile, Lufthansa has announced plans to cut -20,000 flights because of jet-fuel shortages. This is another example of an economic landscape that favors upstream owners of technology, materials, and essential infrastructure over downstream firms.

• Services Demand Deteriorating: While yesterday’s retail sales number for March was borderline blowout, the Philly Fed service sector diffusion index was short of stellar, coming in yet again at a contractionary -16.5 print for April. That only looked good next to the woeful -23.9 reading in March. Not as bad, but still pretty bad. New orders, the flashpoint for future demand, cratered to -16.9 from -4.7, to stand at a three-year low.