Record earnings, record highs—yet muted reactions. What the market is really signaling right now.
KEY TAKEAWAYS
Markets are processing multiple competing narratives simultaneously, and whichever dominates tends to dictate daily direction. Even strong positive developments can be overshadowed if a more powerful negative narrative takes center stage.
Earnings season has been historically strong, with an unusually high percentage of companies beating expectations and delivering outsized surprises. The magnitude of these beats suggests underlying corporate strength across key sectors.
Despite strong earnings, stock reactions have been muted because expectations were already elevated. When markets price in perfection, even exceptional results struggle to push prices meaningfully higher.
Market gains are being driven by a narrow group of mega-cap stocks, while broader participation remains limited. This divergence signals potential fragility beneath headline index strength.
Geopolitical risks, particularly around global energy supply routes, are dominating investor attention. These risks are powerful enough to overshadow even the strongest earnings environment in years.
MY HOT TAKES
Markets are less about absolute performance and more about expectations versus reality. When expectations are stretched, even great outcomes can disappoint.
Narrow market leadership is not inherently bearish, but it reduces the margin for error. If leadership falters, there is little support beneath the surface.
Investors often overcomplicate short-term market movements, but long-term success still comes down to fundamentals and discipline. The challenge is sticking with that approach.
Geopolitical narratives can quickly override economic fundamentals, creating short-term distortions in market behavior. These moments test investor conviction.
The real signal in markets often lies beneath the headlines, requiring deeper analysis beyond index levels. Surface strength can mask underlying weakness.
You can quote me: “The generals are charging–but the army isn’t following.”
Hold your applause, please. Every day, even before the early birds start their searches for worms, I am on the search for what topics I need to share with you for the day. The overarching filter is pretty much "what is the narrative that is going to impact my readers' and viewers' portfolios today?" During most time intervals, the market is processing two to three narratives simultaneously, and they–for the most part–compete daily to become the center of attention. Those narratives might be in completely different domains and they typically both support a common, high-level theme. If one narrative gets the top spot and it yields a bitter flavor, stocks will be under pressure even if the other narrative is sweet as summer melon. Of course, if the dominant narrative shakes up a tasty concoction, stocks will take wing. If dominant and secondary narratives all align, you can, with a high level of conviction, predict–with a statistical edge–the direction of stocks for the day.
Does all this sound complicated to you? Well, it is but it really isn't. If you are on the hunt to find a method to predict whether the stock market will climb or not in a session, you should re-read my opening paragraph. I took a bit of literary license, but the playbook is there. BUT WAIT. Before you copy and paste it into your Apple Notes app and start planning your retirement, I have to give you the caveats. IT IS RARELY THAT SIMPLE. Markets often act with vagrancy, and my long-time followers know one of my famous quotes: "the market rarely does what is convenient for you on any given day."
Think of it as a river. The water flows in a direction, but there are many eddies and cross-currents within that river. In our case–unlike in nature–the river can change direction on a whim. The river is like the index while all the eddies and cross currents are individual stocks, different sectors, industries, or sub-industries. You can do well if you just let the main river current take you. The S&P 500 has earned 10% on average since 1928 and an impressive 12 - 13% in the past 10 years. What? Not impressed with 12 - 13% when companies like Alphabet earned 66% and NVIDIA earned 39% last year, with NVIDIA returning 239% and 171% in the two years prior? I get it. Those are impressive. Those types of returns are found in those dangerous cross-currents and eddies. If you call those wrong…well, the results can be…er, harmful.
Let's get out of the river and back into the markets. In the past nearly year and half, the narratives I find myself juggling as the morning birds begin their songs have multiplied significantly. Two to three narratives have turned into 7 or 8, all jockeying for the top spot. Within those narratives, there are dozens more sub-narratives all hiding just below the surface vying to suck you under and send you packing. You could say–in a nutshell–things are a bit complicated. But they shouldn't be, and needn't be. If you do your homework and select stocks that have solid fundamentals which are helmed by great management, you will accrue great returns IF you maintain a long-term focus. Interestingly, the second part is the hardest part for most investors. That takes discipline–not skill nor luck. I will assume that you have that for now. On the skill and fundamentals, earnings season is THE event that should garner most of your attention. We are–in fact–in the midst of earnings season which is giving us some numbers for the record books. Did you know that?
Approximately 85% of S&P 500 companies that have reported so far this season have beaten earnings estimates. Let that sink in for a moment. The historical average beat rate hovers somewhere around 67%. We are not modestly above average right now. Essentially, we are lapping the field. The aggregate positive earnings surprise for the season stands at 20.7%, compared to a ten-year average of roughly 7%. Communication Services alone delivered a staggering 60.6% aggregate earnings surprise, led by Alphabet, which reported earnings per share of $5.11 against a Wall Street consensus of $2.68. That is not a beat. That is an ambush. Netflix and Meta were not far behind. By any statistical measure you care to apply, this is one of the strongest earnings seasons in a generation.
So why is nobody celebrating?
The S&P 500 closed Tuesday at 7,259 which is a record high, yes–but the market's reaction to individual earnings has been, to put it charitably, underwhelming. PayPal beat estimates and fell nearly 10%. Palantir beat estimates and gained less than 2%. AMD, which I want to get to in a moment, posted one of the cleanest prints of the entire season and the stock barely flinched initially in the after-hours session (it jumped higher, later). This is what Wall Street calls a market that has already priced in perfection. When the bar is set at “extraordinary” and you clear it, there is nowhere left to go. The applause has already been given. The tickets were already sold. You are playing to a house that paid full price months ago and is now quietly wondering whether they overpaid.
That brings me to AMD, because the numbers CEO Lisa Su put up last night deserve their own paragraph. Revenue came in at $10.3 billion for the first quarter of 2026, up 38% from a year ago. Non-GAAP earnings per share hit $1.37, beating the Street's $1.29 estimate. The data center segment–the one that actually matters in the AI era–generated $5.8 billion, up 57% year over year. Free cash flow for the quarter reached $2.6 billion, compared to $727 million in the same quarter last year. And the guide? AMD told investors to expect $11.2 billion in Q2 revenue, implying roughly 46% year-over-year growth, with margins expanding further. The stock touched an all-time high of $379.90 in after-hours trading. Then the sun came up, and everyone moved on. That, in a single anecdote, is the story of this earnings season.
Now here is where I want to be careful, because the reflex reading of all this–record highs, muted reactions, narrow participation–is to reach for the panic button. Resist that impulse! The S&P 500 hitting all-time highs while fewer than 60% of its components trade above their 200-day moving average is, historically speaking, a yellow flag. The equal-weighted version of the index has not yet made a new high, which tells you plainly that the gains are concentrated in a relatively small number of names. Analysts have dusted off their dot-com comparisons, and I understand the instinct. In the late 1990s, narrow breadth at record highs preceded one of the most painful unwinds in market history.
But here is the critical distinction, and it is the one that most of those comparisons miss entirely. The companies leading this rally are not running on narrative and hope. They are printing cash. NVIDIA, Alphabet, AMD–these are businesses with expanding margins, real revenue growth, and AI infrastructure demand that is not slowing down. Alphabet just posted a 91% earnings beat. AMD's data center revenue grew 57% year over year and the company generated $2.6 billion in free cash flow in a single quarter. These are not 1999 dot-coms burning through venture capital on Super Bowl ads. The gains in the leaders are, for the most part, justified. The problem is not that the generals are frauds. The problem is that the army is not following them. And when an army stops following its generals, even the best-led charge can stall.
The historical record on narrow rallies is sobering enough to warrant your attention. Previous market surges of similar velocity, like the early 1990s, the mid-1990s, were accompanied by much broader participation, with the vast majority of stocks confirming the move. The late-1999 and early-2000 rally, by contrast, showed weak breadth right up until the moment it broke. We are not at that extreme today, but we are closer to that end of the spectrum than to the healthy one. That does not mean you sell everything and hide. It means you keep your eyes open and know exactly what you own and why you own it. Are you tired of hearing me say that? Good, because I am going to keep saying it: know what you own and why–always.
What you want to watch over the next two weeks is simple: does the earnings momentum spread beyond the megacap tent, or does it stay trapped inside it? Roughly 15% of S&P 500 companies have yet to report– retailers, regional banks, the industrials. These are the names that will tell us whether the economy beneath the AI boom is functioning or quietly fraying. If those reports disappoint, the narrow leadership provides no safety net. There is nothing underneath to catch the fall.
Which brings us full circle to those morning birds and the narratives fighting for the top spot. Right now, the Strait of Hormuz is winning that fight. Geopolitical risk has a way of doing that– it cuts through the noise and demands attention in a way that a quarterly earnings beat simply cannot match. Earnings are not losing the argument on merit; they are losing it on volume. The numbers are extraordinary by any historical measure, but the market has one eye fixed on a narrow waterway through which roughly 20% of the world's oil supply flows, and that eye is not blinking. Meanwhile, the earnings narrative is complicated by its own internal contradictions. The beat rate is historic, but much of the good news was already baked into prices long before the reports hit the tape, and the stocks doing the heavy lifting represent a remarkably thin slice of the index. So you have a dominant narrative shouting about geopolitical risk, a secondary narrative about record earnings that carries its own asterisk–a dangerous cross-current–and beneath both of them, the quiet reality that the rally looks a lot thinner than the headline numbers suggest. That is not one complicated story. That is three stories running simultaneously, all pointing in different directions. Welcome to my morning.
YESTERDAY’S MARKETS
Yesterday, the S&P 500 rose 0.81% to close at a record 7,259, while the Nasdaq Composite gained 1.03% to set its own closing record at 25,326. The Dow Jones Industrial Average added 356 points, or 0.73%, to finish at 49,298. Tech was the best-performing sector in the S&P 500, adding more than 2% on the day, while a pullback in oil prices provided the broader tailwind. West Texas Intermediate crude fell roughly 4% to settle at $102 per barrel as Defense Secretary Pete Hegseth stated that the Iran ceasefire holds. AMD reported after the bell, posting first-quarter revenue of $10.3 billion and non-GAAP earnings per share of $1.37, both ahead of estimates, with the stock touching an all-time high of $379.90 in after-hours trading.
NEXT UP
ADP Employment Change (April) came in at 109k missing the 120k expected level but higher than March’s 61k adds.
Fed speakers today: Musalem and Goolsbee.
Important earnings today: Apollo Global Management, Global Payments, Owens Corning, CVS Health, Freshpet, Exelon Corp, Uber Technologies, Johnson Controls, Disney, NRG, Kraft Heinz, Insulet, Performance Food Group, Warner Bros Discovery, Whirlpool, AppLovin, Albemarle, Blue Owl Capital, Fortinet, Fastly, DoorDash, IonQ, Snap, Dutch Bros, Fluence Energy, Cognex, Kratos, and Beyond Meat.