Market Thoughts: Breathe deeper?

When Jay Powell finally exits the building, he’ll have done so doing the right thing. Pundits swirling that his staying on is a political act are headline hustling. The world doesn’t need any more drama than we have. Haters gonna hate. They always do.

I imagine Jay Powell is looking for the Justice Department to defer to the Office of Inspector General any pursuit of criminality associated with the $2.5bn renovation of the Fed’s headquarters. I’m sure he is eager to move on. I would be.

Powell’s 14-year term as Governor ends on January 31st, 2028. Whether he leaves at the end of that or sooner, the game theory is challenging. Even if he stays until January 2028, the Administration will still be in office. He knows that. They do as well.

I have tremendous respect for Jay Powell and how he helped navigate the Fed through the series of shocks we’ve seen. The last remark he made at his presser reflected humor. Also, keen awareness of the moment: “Thank you very much everyone, I won’t see you next time.” He can breathe a little deeper.

I’d avoid spending any time on whether four dissenting votes at this policy meeting reflect a ‘fractured’ Fed. Also, if they were meant as a statement to the Administration. The Committee retained a bias to ease because removing it might be viewed foreshadowing the next move is higher.

Three of the dissents were because of that statement. It provides the Fed flexibility. If I’m the next Fed Chair, I’m grateful it’s in there. Also, for the dissents. Those signal very clearly the Chair needs to build consensus to be effective. He can’t determine the direction of policy rates on his own.

Oil prices continue to move higher. Interest rates as well. As of this writing, it appears there is little progress being made reopening the Strait. I hope that’s quickly proven to be incorrect. As always, read nothing political in that observation.

The European Central Bank, Bank of England and Bank of Japan each chose to keep policy rates on hold, along with the Fed. They choired: we don’t know what comes next; we can see cost-push inflation pressure building as well as a rumbling of contraction in consumption. A growth shock brought on by energy related demand destruction, their greatest concern.

Energy markets are behaving as they should. Not only are spot prices rising, so are futures. Markets are pricing in a protracted blockade. Price spikes have been buffered as inventories are drawn down. It’s been healthy to have them as shock absorbers. They’re not endless.

Investors are getting a little jittery. Of the many things I’m watching, energy prices and the shape of the futures curve rank high on my list. I’d put the price of long-term bonds and rising inflation expectations right behind it.

For 10-year U.S. Treasury bonds, 4.5% is an important level to keep an eye on. Likewise, 5% on 30-year bonds. Breaking through those levels might provoke a risk-off reaction.

As earnings season rolls along, so does good news. Earnings are strong. Forecasts in aggregate continue to be exceeded. Importantly, C-suite execs aren’t leaning into the bait of amping expectations. I view their outlook temperance a positive.

Ramping up further expectations can spiral exuberance into greed. When investors expect 12% earnings growth and get 14%, it validates valuation levels. The market breathes deeper, growing into higher multiples. We saw that last year. It’s sign of a healthy market.

If it then gets hyped to +20%—which we’re starting to see—investors may rush in for ‘free’ money. FOMO ends badly. Ironically, if we wind up with 14% growth, investors may feel disappointed. They shouldn’t, it’s a win. It’s fascinating to watch market psychology in motion.

Speculators move from being weighing machines (with a focus on valuations) to voting machines (where raw emotion takes hold). Then back again. We seem to be teetering on one of those moments. Bulls have the upper hand today for the right reason. Strong fundamentals, but they’re backward looking.

Experts I’ve spoken to keep circling a few months before the slow fuse on energy demand destruction ignites. Until then, inventory draws serve as buffer. The macro landscape is wobbly, problems mounting the longer the Strait is blockaded. Breathe deeper?

“If you think I couldn’t hold my own, believe me, I can, believe me, I can....” Tame Impala, “Breathe Deeper.”

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 4/30/26

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.