When Oil Hits the Cover, Pay Attention

1) OIL – Yesterday I commented on how telling certain magazine covers can be for overall global markets.  Every now and then they point to a specific sector.  And right now, that is oil.  The Economist tends to give us more frequent contrarian gems, but every so often The New Yorker delivers a cover that demands attention.  Last week was one of those moments, with an illustration of Donald Trump chugging oil straight from the barrel.  Their timing, as usual, was pretty great.  After hitting multi-year lows last month, crude oil closed this week at its highest level since October.  Right now, West Texas Intermediate crude (WTIC) is trading at $63.43, above TREND, which is currently at 60.21.  What’s next?  Probably a test of that TREND level before moving higher, which of course would re-accelerate inflation, which is also the current Q2, 2026 conditional economic outlook.  From an investor's standpoint, that’s okay, with growth accelerating as well.  We increased our commodity exposure back on JAN 13

2) WATCHING – In healthy bull markets, there's little demand for consumer staples stocks.  These are the products people buy no matter what.  Good economy or bad.  Boom or bust.  Toilet paper, toothpaste, soda, potato chips, laundry detergent, cigarettes.  The basics.  That's why strength in this group matters.  When these stocks start outperforming the broader market, it can often be a warning sign (it can also just be some rotation, so timing is key).  As these “boring” stocks move higher, it can be that investors are quietly shifting toward safety, even as the headlines stay optimistic.  For most of this bull market, that hasn't been the case.  Consumer staples have been persistent underperformers.  In fact, they were the worst-performing sector in 2025.  So far this year, that has shifted some.  Consumer staples (XLP) are already up 7% year to date, while the S&P 500 is up 1.5%.  That shift shows up clearly in the relative performance, which can be seen by looking at the SPY / XLP ratio.  It shows that the S&P 500 has been making lower highs relative to the Staples (XLP).  Is this a death knell to the bull?  No.  Just something to be mindful of.  Another sector that is signaling an interesting divergence is Financials (XLF).  It’s actually down -3.3% so far this year.  We’d like to see Financials at the head of the pack in a bull market.  This isn’t to suggest that the current market isn’t healthy, just a couple of “newer” items that we’ll watch.  But as always, we’ll let the allocations be dictated by the machine’s Flows.  And those, on a broader scale, are still quite healthy.

3) EARNINGS – Why is there currently not a serious risk of any major market deterioration/collapse?  Well, outside of the media’s overly pessimistic stance, there are a number of potential answers to that.  But a main one is because 89 of the S&P 500’s companies have now reported an aggregate year-over-year EPS GROWTH ACCELERATION to +21.5% YoY (year over year), which is the best so far of EPS Season.  The Russell 2000’s (small caps) Growth Rate accelerated to +23% YoY.  Those are strong numbers which continue to point to growth acceleration.  Microsoft, Meta, and Tesla all report tonight after the close.  Let’s see if they can deliver some acceleration.  Of those three, the one that is signaling the largest potential for a pullback is META, but both META and MSFT are still sitting in a bearish (downward bias) TREND.