Yardeni Research maintains that the U.S. stock market rally that started on March 31 is still holding up, despite headwinds that include oil trading above $100 a barrel, turbulence in the software sector and unresolved tensions in the Middle East.
Brent crude pushed higher again on Thursday evening after reports that Iran's lead negotiator, Mohammad Bagher Ghalibaf, resigned from peace talks, a move attributed to interference by hardliners within the Islamic Revolutionary Guard Corps. Even so, Yardeni points out that futures contracts are pricing in a pronounced drop in oil prices over the next 12 months.
Market sentiment measures also do not yet signal excess bullishness, according to Yardeni. The firm says the bull/bear ratio is not "high enough to give us pause about the stock market rally," indicating that, from their read, investor positioning does not yet represent an overextended market.
Software names absorbed significant losses on Thursday: ServiceNow plunged 18% after warning that deals in the Middle East were delayed, and IBM slid 7% amid signs of slowing growth at Red Hat. Microsoft added to the negative tone by announcing voluntary buyouts for long-tenured employees, a move Yardeni describes as part of "a massive internal reorganization to pivot away from traditional software toward pure-play AI efforts." These developments weighed on sentiment for parts of the software and enterprise application complex.
Against that backdrop, investors rotated toward hardware, with semiconductor stocks advancing. Intel was an outlier after hours, rallying as much as 20% following an earnings beat, a move Yardeni notes in the context of the sector rotation.
Economic indicators offered additional support for the rally. Initial jobless claims remain well below long-run averages, and April flash Purchasing Managers' Indices showed broad-based acceleration across both Services and Manufacturing. Yardeni cautions, however, that some of the manufacturing strength appears to be driven by precautionary inventory accumulation ahead of feared supply disruptions rather than pure demand expansion. Supplier delivery times have deteriorated to their weakest levels since mid-2022, which Yardeni views as a warning that some gains could be transitory.
The mix of persistent labor-market strength, robust flash PMIs and a sectoral shift toward hardware and semiconductors helps explain why the March 31-led rally has continued despite higher oil and software-sector volatility. Yardeni's view is tempered by the firm's observation that futures imply a significant normalization in oil prices over the coming year and by signals within manufacturing that warrant monitoring.
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