The earnings environment we are in is truly extraordinary. Due to rising order backlogs and strong forecasted earnings, I expect that this party will persist until the end of the year, and 2026 will be just as strong as 1999, which was a year when I had multiple portfolios up over 100%. Expect some bumps after and announce stunning quarterly earnings announcements, but every dip is a buying opportunity in my opinion.
Ed Yardeni is calling the current AI surge the “To null and Beyond!” rally. The memory-related stocks, like Micron Technology (MU) and have been especially hot this week. also got AI investors excited after it provided quarterly sales guidance of $11.75 billion (above analyst consensus estimate of $10.92 billion) and earnings guidance of 72 cents per share (above analyst consensus estimate of 56 cents per share).
Additionally, many stocks are benefiting from the chaos surrounding the Strait of Hormuz, especially the shipping stocks I recommend: , , and .
Speaking of the Strait of Hormuz, the U.S. Navy has commenced escorting vessels through, and prices are moderating on the hope that traffic in the Strait of Hormuz will dramatically increase.
The other reason that crude oil prices are falling is that Iran is reviewing a proposed U.S. peace plan based on a one-page memorandum. Iran said that it would respond through Pakistan, which has been helping to broker the peace negotiations. The good news is that the “economic squeeze” on Iran appears to be starting to work. The Wall Street Journal reported that Iran is struggling to store unsold crude oil and is now putting it in old tanks. If Iran has to cap its crude oil wells, it will curtail production for months, since restarting oil wells takes a lot of engineering. So, it will be interesting if economic sanity causes Iran to reach a permanent peace agreement.
Meanwhile, I am expecting much bigger productivity gains in the upcoming quarters, which should fuel non-inflationary growth and allow the Fed to cut key . The Labor Department reported on Thursday that rose 0.8% in the first quarter. This was a preliminary estimate that is expected to be revised. Economists were expecting productivity to surge 1.6%, but I suspect the severe winter weather held back some of the productivity gains that were anticipated. Unit labor costs rose 2.3% in the first quarter, down from 4.3% in the fourth quarter, which means that wage inflation is cooling.