22.07.2026 - Shifting Market Patterns

Equity investors continue to ignore many of the headlines, while moves in other asset classes, particularly bonds and commodities, are reflecting the change in headlines and the macro environment far more clearly.

US equities advanced on Tuesday, led by semiconductor stocks, as investors once again attempted to buy the recent pullback and largely looked through the latest developments in the Iran conflict.

Part of this resilience is supported by corporate earnings. The second-quarter reporting season has started on a strong note, with approximately 88% of the roughly 66 S&P 500 companies reporting so far beating analysts' earnings estimates, according to FactSet.

However, investors should look beyond the headline beat rate. A significant share of the early reports came from major US banks, whose results benefited from exceptionally strong trading revenues amid heightened market volatility. These earnings may therefore not be representative of the broader corporate sector.

Attention now turns to some of the market's most influential companies. Alphabet, Tesla, and ServiceNow are all scheduled to report earnings tonight after the market closes. Their results and guidance are likely to provide a much clearer indication of whether current market optimism, particularly in technology and AI-related stocks, remains justified.

Markets:

• Equities: yesterday’s rebound in semiconductor and technology stocks faded quickly.

• Bonds: continue to move higher, US 10y yield around 4.64%, Japan 10y yield 2.74%

• Commodities: Oil prices continue to rise, with WTI around USD 86/barrel and Brent around USD 94/barrel

  Precious metals: higher, gold at USD 4’125/oz, silver trades above USD 59/oz

• Currencies: USD light uptrend

• Cryptos: give up yesterday’s gains - Bitcoin at USD 65k

• Volatility: remains low with the VIX index at 17

My View: Looking across the entire market rather than focusing on a single asset class: The recent market moves do not fully add up.

One of the oldest observations in financial markets is that bond investors usually recognize changing macroeconomic regimes before equity investors do. Bond markets tend to react more quickly to shifts in inflation expectations, monetary policy and economic fundamentals, while equity investors often remain driven by optimism and fear of missing out.

That divergence is becoming increasingly visible looking at current market patterns.

Yesterday's rally in semiconductor stocks looked more like another FOMO-driven rebound than the beginning of a sustainable move higher. As I expected, much of that strength faded quickly.

Meanwhile, bond yields continue to climb, oil prices remain elevated and geopolitical risks have not disappeared, even in the opposite. Those are not the ingredients that typically support record equity valuations.

The oil market deserves particular attention. Despite ongoing disruptions in the Middle East, oil prices still appear to underestimate the tightening supply situation.
US crude inventories have fallen to levels equivalent to roughly 43 days of supply, the lowest in approximately 45 years. By comparison, the long-term average is around 65 days, while inventories before the pandemic were closer to 90 days.
The market has largely absorbed the initial geopolitical shock, but the underlying supply buffer continues to shrink.

Higher oil prices eventually feed into transportation, manufacturing and consumer prices, increasing inflationary pressure. Rising inflation, in turn, usually results in higher government bond yields and tighter financial conditions.

History suggests that this combination is rarely supportive for richly valued equity markets.

For now, equities continue to price an optimistic scenario. Bond markets are pricing a more cautious one.

I continue to believe the bond market is sending the more credible signal.

Investors should watch the relationship between oil prices, bond yields and equities closely. If oil continues to rise while yields move higher, today's equity valuations will become increasingly difficult to justify.

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