“Too Expensive to Worry?” – Markets Weigh Lofty Valuations Against Rising Macro Risks
Markets: Rich Valuations, Rising VIX – A Paradox in Perception
This week’s Story Time Thursday explored the disconnect between high S&P 500 valuations and a still-elevated VIX Index.
Investor confidence reflects a belief that recession risk is overstated, and that recent volatility was an overreaction to short-term policy shocks.
If no major exogenous shock materializes, Q2 could finish strong — supported by potential Fed easing and progress on trade deals.
Investor Sentiment Snapshot: Markets are behaving like “bad news needs to be really bad” to derail the rally.
Economic Data: Mixed Signals, But No Red Lights
Initial jobless claims rose 8% week-over-week (241k vs. 223k), but remain well below critical recessionary levels.
jobless
Gasoline demand rose 5.6% YoY in the past week, with prices down 8–15% — giving consumer wallets a tailwind.
Consumer pullbacks are emerging, but falling fuel prices and stable employment help soften the impact.
Google search volume trends show:
Persistent anxiety: “Inflation” and “interest rate” searches are 2x pre-pandemic levels.
Demand rollover: “Restaurant,” “Airbnb,” and “Home Depot” queries have declined.
Growing distress: “Bankruptcy” searches are climbing steadily.
Earnings Recap: Big Tech Anchors, Retail Mixed
$Microsoft(MSFT)$ , $Meta Platforms, Inc.(META)$ , $Apple(AAPL)$ , and $Amazon.com(AMZN)$ all beat EPS expectations, with strong cloud results driving optimism.
However, Apple flagged weak China sales and rising tariff-driven costs.
Amazon Web Services growth (17%) was strong but slightly below forecast, prompting mild investor caution.
Broader results showed resilience:
Wayfair, Reddit, Eli Lilly, and Airbnb topped estimates.
Estée Lauder and other discretionary names face mixed outlooks tied to global trade exposure.
MAG7
The $NASDAQ(.IXIC)$ reclaimed early-April highs, buoyed by tech strength. Broader participation remains tentative.
Macro Policy: Trade Optimism, Tariff Worries, Fed in Focus
Markets rallied modestly after Commerce Secretary Lutnick suggested a key trade deal is imminent.
President Trump’s new tariffs, especially on tech and pharma, remain a wildcard.
The Fed is increasingly expected to cut rates by early summer, if economic data softens without tipping into crisis.
Friday’s jobs report (expected +135k payrolls, 4.2% unemployment) will heavily influence Fed expectations and bond market direction.
Key Strategy Themes Going Forward
Valuations and volatility can coexist, as long as belief in earnings growth persists and macro shocks remain limited.
Big Tech strength offers a buffer, but cracks in consumer demand and tariff exposure highlight growing fragility.
Search data and initial claims hint at softening under the surface, but not enough (yet) to alter core positioning.
Oil and gas tailwinds, combined with potential Fed cuts and trade progress, could support a stronger-than-expected Q2 close.
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This summary is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.
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