Oil spiked while consumers and tech stayed resilient
Has oil lost its ability to shock?
Oil was very volatile again this week as hopes faded for a quick resolution to the Iran conflict. Talks are now being framed on a multi-month timeline, with the Strait of Hormuz still effectively constrained and military rhetoric picking up once more. A few weeks ago, that combination would have hit everything: stocks down, bonds down, classic risk-off sentiment. Not anymore.
This time, markets barely flinched. On Thursday oil was up 3% and equities held steady — even the usual playbook broke down. Higher oil prices no longer automatically mean everything else falls. Even the TSX did not follow the script; the index usually gains with oil, but was actually down on Thursday. It suggests the “Iran trade” that dominated markets over the past month is fading. Positioning has adjusted and markets are starting to look past the headlines again.
Is “great” no longer good enough?
Taiwan Semiconductor delivered what most companies would call a perfect quarter. Revenue up 35%, profits up nearly 60%, margins at record levels and forward guidance pointing to continued strength. The AI story remains intact. Demand is strong, capacity is tight and pricing power remains. And yet, the reaction wasn't what you would expect, as is becoming a pattern. Strong results are being met with hesitation. The issue is not fundamentals, but expectations. When the bar gets this high, even great news needs to be exceptional to move stocks meaningfully. That is the phase we are in right now, especially in anything tied to AI.
How are U.S. consumers hanging on?
Higher gas prices are starting to show up as you would expect. Spending at the pump surged, with a sharp jump in March as fuel costs moved higher. But outside of that, the story is unchanged. Consumers are still spending. Travel, entertainment and retail all remain solid. There is no meaningful pullback yet in discretionary categories. Energy is acting like a surcharge, but so far it is not breaking demand. That gives the economy more resilience than many expected going into this shock. Bank earnings are reinforcing that message. Results across the board from Bank of America, JP Morgan and others are all pointing to a resilient consumer and healthy underlying activity. Spending is holding up, credit quality remains stable and loan growth is still there.
What stood out is how banks have navigated the volatility. Trading desks delivered extremely strong results, benefiting from the swings in rates, commodities and equities. Investment banking activity is also showing signs of life again. There are risks, of course, with ongoing concerns around private credit on the radar. But for now, the data is clear and the US banking index has rebounded very sharply from recent weakness. The consumer is still consuming and the system is holding up better than expected.
What lies ahead?
Earnings season has started strong and continues next week. With markets stabilizing and fundamentals holding up, results matter more than headlines again. If earnings continue to come in strong, they may very well support the extreme rise we have seen in the market in the last two weeks.
Listen to the latest podcast from the IG Investment Strategy Team for further insights.
