Given the chaotic nature of the negotiations, any unexpected development could send oil prices above $100 per barrel again. Black swans seem to be everywhere in the Strait of Hormuz...

But below the $97-99 per barrel range – which includes the major 38.2% Fibonacci retracement of the Iran-led spike and the 50-DMA – US crude remains in a bearish consolidation zone.

In the absence of fresh negative catalysts, we should see prices stabilise within the $85-90 per barrel range. Calmer headlines could open the door to a further retreat toward $80 per barrel.

Anyway, let’s leave the headlines aside – they simply don’t tell us anything worthwhile – and look at the data to understand the impact of this geopolitical mess.

The latest growth and inflation updates suggested that US GDP grew more slowly than expected in Q1 – 1.6% versus the 2.0% expected by analysts. Price pressures came in slightly softer than expected. But when I say softer than expected, price pressures remain notably higher than before the Iran war; they were simply a little better than forecast.

Personal spending increased modestly in April while personal income stagnated, meaning Americans continued spending despite stagnant income growth. Meanwhile, sellers of affordable products such as Dollar Tree are benefiting from squeezed purchasing power. Dollar Tree jumped nearly 18% yesterday on better-than-expected earnings, while Best Buy rallied more than 15%.

Overall, however, US corporate profits fell in Q1: down 0.4% versus expectations for a 5.7% increase.

That was the biggest surprise in yesterday’s data, if you ask me, as it appears disconnected from the incredible performance of the S&P 500 last quarter and the 28%+ earnings growth reported by the index in Q1. It highlights once again the widening gap between the tech-heavy mega-caps benefiting from AI-driven optimism and massive liquidity inflows, and the rest of corporate America.

The non-tech pockets of the market, smaller companies and large parts of the broader corporate landscape are struggling with higher borrowing costs, slower demand, refinancing pressures, and geopolitical and trade uncertainty.

Meanwhile, tech-heavy indices and tech headlines continue to dominate the narrative – the same narrative that pushed the S&P 500 to a fresh record high yesterday. Snowflake jumped 36% yesterday – yes, 36% – after the software company’s results showed that AI had helped improve revenue rather than steal its business.

Dell jumped 39% in the after hours trading on strong and better than expected results.

God Bless AI!

Double-Leveraged Burger & Bubble Tea

Yet, yesterday’s data served as a reminder that corporate earnings growth – much like the market rally itself – is not broad-based. But we already knew that. It is being driven by a handful of giant companies while much of the rest of corporate America lags behind.

And it’s not only about narrowing market breadth; it’s also about rising leverage.

The last time US net margin debt was this high was just before the dot-com bubble burst.

So we keep returning to the same question: Is this a bubble?

As an economist, I will repeat that it isn’t a bubble until it bursts. But a few indicators are flashing red.

Market breadth is one of them. The equal-weighted versions of the major tech-heavy indices are lagging behind their cap-weighted counterparts, and they have good reasons to do so, including rising energy prices, higher inflation expectations, rising global yields and a deteriorating economic outlook. The gap between the Kospi and its equal-weighted version is especially worth noting.

In the US, the Nasdaq’s PE ratio has climbed to historically uncomfortable levels. The CAPE ratio is approaching 40 – the last time that happened was during the dot-com bubble.

And the Buffett Indicator – which measures total stock market value as a share of GDP – has surged above 230%, the highest level on record by a wide margin. For perspective, it peaked around 130% during the dot-com bubble.

These metrics do not answer the question of whether this is a bubble, nor do they necessarily mean a crash is imminent. But they do suggest that investors are paying significantly more for each dollar of economic output than at any point in modern market history.

What to do? Watching markets march higher without being involved is frustrating. Diversification and hedging against a potential pullback are necessary to avoid getting caught on the wrong side of a sudden reversal.

The big challenge at the moment is that traditional diversification is becoming less effective. Rising global yields are putting pressure on bond prices, weakening the classic stock-bond hedge just as equity valuations are stretching to extremes. Gold, another traditional safe haven, is testing its 200-day moving average to the downside as higher real yields reduce its appeal.

In this environment, focusing on quality companies with strong balance sheets and durable earnings, diversifying across regions and sectors, and selectively using defensive assets or options strategies may offer better protection. The difficult part is that the market's momentum remains powerful, but so does the gap between prices and fundamentals.