U.S. and Canadian stock futures are edging higher this morning, while oil prices are slipping as investors lean on a supportive earnings backdrop and hope that a broader Middle East conflict does not re-escalate, just a day after fighting broke out in the Persian Gulf. That said, markets remain highly sensitive to developments in the region, with yesterday’s flareup and uncertainty around the Strait of Hormuz quickly reversing risk-on sentiment. While the S&P 500 pulled back modestly from record highs, the focus shifted to rising oil prices and Treasury yields, reflecting concerns that prolonged supply disruptions could reignite inflation and tighten financial conditions. On the earnings front, results continue to be in focus. In Canada, Shopify, Thomson Reuters, and Suncor Energy are among those reporting, while in the U.S., attention will be on chipmaker AMD, which reports after the close.
As of this morning the U.S.-Iran ceasefire remains intact, though fragile, with recent clashes in the Strait of Hormuz and direct Iranian strikes on the UAE underscoring how quickly the conflict could reignite. Trump’s latest “Project Freedom” initiative to reopen shipping lanes may help stabilize global energy markets if successful, but it also raises the risk of escalation by directly challenging Iran’s control over the strait. While oil prices eased slightly as immediate panic decreased, the broader geopolitical environment remains unstable, with global trade, shipping security, and inflation expectations still vulnerable to sudden shocks.
Equity markets are balancing between two opposing forces; continued AI-driven upside and growing macroeconomic uncertainty from elevated energy prices. While strong tech earnings and semiconductor momentum are sustaining record-high U.S. equities, rising oil prices and geopolitical uncertainty (particularly around Iran and the Strait of Hormuz) continue to pose inflationary and growth risks that could quickly destabilize sentiment. European markets remain vulnerable given their greater energy sensitivity, with higher volatility reflecting increased exposure to supply disruptions and stagflation concerns. Investors are navigating an unusually bifurcated market environment where bullish AI optimism is colliding with rising macro tail risks, leaving markets highly sensitive to any new developments.
Remember tariffs? Tensions between the U.S. and European Union are resurfacing as renewed U.S. tariff threats on European autos, threaten the EU economy. The tensions add another layer of uncertainty to an already weakened European economy, grappling with high energy costs and slowing growth. For Europe, which is already facing downgraded forecasts due to Middle East-related energy disruptions, a revived transatlantic trade conflict could further pressure key industries like automotive manufacturing while increasing broader economic uncertainty. While European leaders still prioritize negotiation, retaliation remains on the table if Trump escalates his rhetoric.
This comes after new developments from China, whose government directed domestic companies to ignore U.S. sanctions on refiners tied to Iranian oil marks. This is a major escalation in economic tensions between China and the U.S., signaling a willingness by Beijing to directly challenge U.S. sanctions. This move could increase geopolitical and financial friction by forcing banks, refiners, and multinational firms to navigate conflicting legal systems, while also testing the global dominance of U.S.-led financial enforcement. Beyond energy markets, the decision reflects China’s strategic shift toward using economic sovereignty tools more aggressively amid its power struggle with the U.S. Experts have noted that this could become a critical inflection point for global trade, sanctions enforcement, and the evolving balance of economic power between the world’s two largest economies.
No retirement party for Powell… Yet. Jerome Powell’s decision to remain on the Federal Reserve Board after stepping down as chair represents a desire for continuity and institutional stability. Rather than retiring, Powell appears positioned to provide experience and stabilizing support during the transition at a time when the policy backdrop and fed independence remains uncertain. While this move may strengthen internal checks, it also introduces new complexities for incoming Chair Kevin Warsh, whose leadership will now unfold alongside his predecessor’s continued presence.
Sell in May? Recent market behaviour is challenging the traditional “sell in May and go away” strategy, as strong momentum and resilient corporate earnings challenge the sell in May narrative. While midterm election years and unresolved macro risks, including Middle East tensions and leadership changes at the Fed, could still introduce volatility, the S&P 500’s rebound and long-term trend suggest investors may be better served by focusing on fundamentals rather than calendar-based strategies alone. Over the past decade, remaining invested through summer months has significantly outperformed defensive “sell in May” approaches. So, while caution remains warranted, the playbook may have changed, with strong momentum and earnings resilience suggesting the old adage may be outdated in today’s environment.
Diversion: Guess he has a lot of time on his hands…and a lot of bands
