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Fuel for a Recovery: Oil Relief & Robust Fundamentals
Key Takeaways
Oil and equities have decoupled for the first time since "Operation Epic Fury" began.
OPEC has committed to increasing oil production.
Tech valuations have reached historically attractive levels.
Early Monday, stock futures rose amid chatter on Wall Street about a potential ceasefire between the United States and Iran. Although such chatter has been hard to trust recently, oil data, fundamentals, and market internals point to a market that is poised to rally:
Oil Relief is on the Horizon
Crude Oil & Equities Finally Decouple
Since the launch of “Operation Epic Fury” on February 28th, oil and equities have experienced an extreme negative correlation. For instance, when crude oil prices spiked by more than 10% on March 6th, the Nasdaq plunged by ~1.5%. Similarly, on March 12th, crude oil jumped ~10%, and the Nasdaq dumped ~1.7%. Although the negative correlation has been strong throughout the war, savvy investors understand the importance of monitoring changes to the correlation because, eventually, correlations become too obvious to the masses and begin to get priced in. Thursday, oil and equities finally decoupled dramatically. Crude oil bolted more than 11%. That said, this time, instead of falling, the Nasdaq finished the trading session slightly green.
Oil Supply Relief & Strait of Hormuz Progress
Over the holiday-extended weekend, positive signs of oil supply relief emerged. OPEC+ released a statement saying, “As part of our commitment to supporting the stability of the oil market, 8 countries have decided to increase production by 206 thousand barrels daily.” With increased supply, the market will likely shift from discounting scarcity to expecting a balanced supply.
Meanwhile, the Strait of Hormuz, which has been the largest chokepoint for oil and gas shipments, shows signs of progress. Over the weekend, the Strait of Hormuz saw the largest flows of vessels passing through it since March 1st.
Image Source: Bloomberg
Fundamental Strength
Earnings Expectations are Strong Despite the War
According to FactSet data, 59 S&P 500 companies have issued positive EPS guidance for Q1 2026, the highest total in five years.
Image Source: FactSet
Earnings season will kick off mid-month, with earnings from banking giants such as Bank of America ((BAC - Free Report) ),JPMorgan Chase ((JPM - Free Report) ),Citigroup ((C - Free Report) ), and Morgan Stanley ((MS - Free Report) ).
Tech Valuations are Extremely Attractive
One benefit of the recent correction in tech stocks is that they are now far more attractive on valuation grounds. For instance, NVDIA ((NVDA - Free Report) ), the AI leader, has its lowest price-to-earnings growth (PEG) ratio in more than a decade.
Image Source: Zacks Investment Research
In other words, with growth still accelerating, tech stocks are becoming extremely attractive from a growth AND valuation perspective.
Sentiment Reaches Extremes
Breadth Washout?
The S&P 500 Index may have just witnessed a breadth washout. Market breadth (the # of stocks rising) recently reached a 50-day low. However, 70% of NYSE issues rose in 3 out of 4 sessions, signaling renewed strength. Historically, when 50-day breadth lows were followed by 70% advancers in ¾ days, S&P 500 returns have been very strong. In such instances, the S&P 500 has gained 6.8% on average over the next three months. (Research via Seth Golden @SethCL).
Image Source: NYSE, Seth Golden
Bottom Line
While geopolitical “chatter” is often met with skepticism, the hard data underlying the market paints an increasingly optimistic picture. Between the stabilization of critical trade routes and the highest positive earnings guidance in five years, the market’s internals are bullish.
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Fuel for a Recovery: Oil Relief & Robust Fundamentals
Key Takeaways
Early Monday, stock futures rose amid chatter on Wall Street about a potential ceasefire between the United States and Iran. Although such chatter has been hard to trust recently, oil data, fundamentals, and market internals point to a market that is poised to rally:
Oil Relief is on the Horizon
Crude Oil & Equities Finally Decouple
Since the launch of “Operation Epic Fury” on February 28th, oil and equities have experienced an extreme negative correlation. For instance, when crude oil prices spiked by more than 10% on March 6th, the Nasdaq plunged by ~1.5%. Similarly, on March 12th, crude oil jumped ~10%, and the Nasdaq dumped ~1.7%. Although the negative correlation has been strong throughout the war, savvy investors understand the importance of monitoring changes to the correlation because, eventually, correlations become too obvious to the masses and begin to get priced in. Thursday, oil and equities finally decoupled dramatically. Crude oil bolted more than 11%. That said, this time, instead of falling, the Nasdaq finished the trading session slightly green.
Oil Supply Relief & Strait of Hormuz Progress
Over the holiday-extended weekend, positive signs of oil supply relief emerged. OPEC+ released a statement saying, “As part of our commitment to supporting the stability of the oil market, 8 countries have decided to increase production by 206 thousand barrels daily.” With increased supply, the market will likely shift from discounting scarcity to expecting a balanced supply.
Meanwhile, the Strait of Hormuz, which has been the largest chokepoint for oil and gas shipments, shows signs of progress. Over the weekend, the Strait of Hormuz saw the largest flows of vessels passing through it since March 1st.
Image Source: Bloomberg
Fundamental Strength
Earnings Expectations are Strong Despite the War
According to FactSet data, 59 S&P 500 companies have issued positive EPS guidance for Q1 2026, the highest total in five years.
Image Source: FactSet
Earnings season will kick off mid-month, with earnings from banking giants such as Bank of America ((BAC - Free Report) ), JPMorgan Chase ((JPM - Free Report) ), Citigroup ((C - Free Report) ), and Morgan Stanley ((MS - Free Report) ).
Tech Valuations are Extremely Attractive
One benefit of the recent correction in tech stocks is that they are now far more attractive on valuation grounds. For instance, NVDIA ((NVDA - Free Report) ), the AI leader, has its lowest price-to-earnings growth (PEG) ratio in more than a decade.
Image Source: Zacks Investment Research
In other words, with growth still accelerating, tech stocks are becoming extremely attractive from a growth AND valuation perspective.
Sentiment Reaches Extremes
Breadth Washout?
The S&P 500 Index may have just witnessed a breadth washout. Market breadth (the # of stocks rising) recently reached a 50-day low. However, 70% of NYSE issues rose in 3 out of 4 sessions, signaling renewed strength. Historically, when 50-day breadth lows were followed by 70% advancers in ¾ days, S&P 500 returns have been very strong. In such instances, the S&P 500 has gained 6.8% on average over the next three months. (Research via Seth Golden @SethCL).
Image Source: NYSE, Seth Golden
Bottom Line
While geopolitical “chatter” is often met with skepticism, the hard data underlying the market paints an increasingly optimistic picture. Between the stabilization of critical trade routes and the highest positive earnings guidance in five years, the market’s internals are bullish.