The U.S. earnings season has served as a temporary veil. Over recent weeks, the market largely ignored rising oil prices, climbing U.S. Treasury yields, and escalating tensions with Iran, largely because earnings reports from companies like Google, Nvidia, and Micron consistently exceeded expectations. However, once the earnings season concluded, the underlying pressures became evident. Last night, three significant events occurred simultaneously: Oil prices surged past a key threshold, with Brent crude exceeding $108 per barrel. Former President Donald Trump reportedly rejected a ceasefire proposal from Iran, and the Pentagon is said to be preparing to rename its military operation to "Operation Iron Hammer"—a move interpreted not merely as a rebranding but as groundwork for a potential larger-scale mobilization. Consumer Price Index (CPI) data exceeded forecasts. The core inflation rate for April reached an annualized 3.8%, marking the highest level since May 2023. The most critical signal was not the number itself but the commentary from Austan Goolsbee, who referred to "overheating" in the economy. As one of the most dovish members of the Federal Reserve, his shift toward a more hawkish tone suggests that discussions about interest rate cuts may be off the table for the foreseeable future. U.S. Treasury yields reached new highs, with the 10-year yield closing at 4.462% and the 30-year yield surpassing 5%. A deeper concern is the simultaneous rise in inflation breakeven rates, indicating that markets are not just pricing in current high inflation but are also anticipating that inflation will remain elevated in the future. These three pressures converged, creating a clear logical chain: rising oil prices contribute to higher inflation, which diminishes the likelihood of interest rate cuts, leading to higher interest rates that ultimately undermine overstretched valuations. Overnight, U.S. stocks reflected this, with the Philadelphia Semiconductor Index declining. Intel fell 6.8%, SanDisk dropped 6.2%, and Qualcomm slid 11%. The issue is not a deterioration in fundamentals but rather that, following substantial gains, any negative catalyst becomes a reason for profit-taking. Data from Bespoke shows that the Philadelphia Semiconductor Index's deviation from its 200-day moving average has only occurred twice in history: once in 1995 and again in March 2000—just before the dot-com bubble burst. Michael Burry commented, "It's like a bloody car crash, just minutes before the accident happens." He did not explicitly recommend shorting but advised taking profits and reducing exposure to technology stocks. Conversely, Ed Yardeni raised his year-end price target for the S&P 500 to 8250, while a Goldman Sachs partner stated that "calling a top is a futile exercise; embrace the bubble." Both bullish and bearish perspectives have merit. In such an environment, the most valuable insight is not determining who is correct but understanding why one holds a particular position, establishing clear profit-taking and stop-loss levels. A position without a plan represents the greatest risk.
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