Markets Continue to Focus on the Positives

Hello, this is Bob Doll with Dahl's Deliberations for June 1, 2026, issue 6.23. Stocks closed yet again for the ninth straight week.

It's now again a record high.

S&P was up 1.5%.

Oil and bond yields fell due to optimism for an Iran solution.

Best sectors were technology up 4.5%, consumer discretionary up 1.5%, and materials up 1.25%.

Worst sectors were energy down 5.5%, consumer staples down 3.25%, and utilities down 2%.

We've entitled our essay this week, Markets Continue to Focus on the Positives of Which Earnings is the Biggest.

The tight correlation between oil prices and global financial asset markets continues on a daily basis, subject to the ever-changing odds of a deal to reopen the Strait of Hormuz.

The overwhelming investor bias has been to bet on a reopening before any meaningful economic damage occurs, but time is running short.

Rational analysis points to a deal as high oil prices and especially dwindling supplies have the potential to derail the global economic expansion or at least undermine some significant parts of the global economy.

Still, it may take a bout of risk off to finally conclude an agreement to at least reopen the strait, with an all-encompassing deal a long way down the line.

It seems that whenever the U.S. equity market and economic data show resilience, the U.S.'s urgency to reach an agreement diminishes.

The stalemate in the strait has pushed global energy markets toward a potential tipping point that could increase anxieties over depleted global stockpiles.

A scenario in which physical shortages of oil and other commodities necessitate rationing would likely trigger an economic growth scare and a risk-off phase in equity markets.

So far, bond markets have reacted to the ups and downs in oil prices via their link to headline inflation, rather than factoring in the demand destruction risk related to the current supply-induced shock.

Headline inflation is indeed firming as higher energy prices show up in the data, and some central banks are mumbling about tightening policy in response to higher headline rates.

The trend in inflation is firming, especially in the U.S., Japan, and parts of Europe.

A continued global economic expansion will spur higher inflation over time, first to the detriment of bond markets and then to risk asset markets further down the road.

We believe the underlying uptrend in yields will persist as bond bulls and central banks belatedly realize that they are offside on their inflation forecasts.

Inflation expectations will become more entrenched the longer consumers and businesses live in a world where higher input costs can be mostly passed on.

This does not herald a return to 1970s-type runaway inflation.

Rather, a slow-moving inflation uptrend perhaps more akin to the second half of the 1960s and early 1970s would better describe the backdrop.

Companies have not only been able to pass on higher input costs this decade, they have even managed to significantly boost their profit margins to record highs.

This, in turn, has allowed the business sector to pay higher wages, yet still report stellar earnings gains quarter after quarter.

Hello, this is Bob Doll with Dahl's Deliberations for June 1, 2026, issue 6.23. Stocks closed yet again for the ninth straight week.

It's now again a record high.

S&P was up 1.5%.

Oil and bond yields fell due to optimism for an Iran solution.

Best sectors were technology up 4.5%, consumer discretionary up 1.5%, and materials up 1.25%.

Worst sectors were energy down 5.5%, consumer staples down 3.25%, and utilities down 2%.

We've entitled our essay this week, Markets Continue to Focus on the Positives of Which Earnings is the Biggest.

The tight correlation between oil prices and global financial asset markets continues on a daily basis, subject to the ever-changing odds of a deal to reopen the Strait of Hormuz.

The overwhelming investor bias has been to bet on a reopening before any meaningful economic damage occurs, but time is running short.

Rational analysis points to a deal as high oil prices and especially dwindling supplies have the potential to derail the global economic expansion or at least undermine some significant parts of the global economy.

Still, it may take a bout of risk off to finally conclude an agreement to at least reopen the strait, with an all-encompassing deal a long way down the line.

It seems that whenever the U.S. equity market and economic data show resilience, the U.S.'s urgency to reach an agreement diminishes.

The stalemate in the strait has pushed global energy markets toward a potential tipping point that could increase anxieties over depleted global stockpiles.

A scenario in which physical shortages of oil and other commodities necessitate rationing would likely trigger an economic growth scare and a risk-off phase in equity markets.

So far, bond markets have reacted to the ups and downs in oil prices via their link to headline inflation, rather than factoring in the demand destruction risk related to the current supply-induced shock.

Headline inflation is indeed firming as higher energy prices show up in the data, and some central banks are mumbling about tightening policy in response to higher headline rates.

The trend in inflation is firming, especially in the U.S., Japan, and parts of Europe.

A continued global economic expansion will spur higher inflation over time, first to the detriment of bond markets and then to risk asset markets further down the road.

We believe the underlying uptrend in yields will persist as bond bulls and central banks belatedly realize that they are offside on their inflation forecasts.

Inflation expectations will become more entrenched the longer consumers and businesses live in a world where higher input costs can be mostly passed on.

This does not herald a return to 1970s-type runaway inflation.

Rather, a slow-moving inflation uptrend perhaps more akin to the second half of the 1960s and early 1970s would better describe the backdrop.

Companies have not only been able to pass on higher input costs this decade, they have even managed to significantly boost their profit margins to record highs.

This, in turn, has allowed the business sector to pay higher wages, yet still report stellar earnings gains quarter after quarter.