- The S&P 500 and Nasdaq 100 have reached historic highs driven by AI and hopes for geopolitical agreements.
- Systemic vulnerability persists due to inflation above 3% and excessive liquidity not absorbed by the Fed.
- The foreign exchange and commodities markets are affected by oil volatility and tensions in the Middle East.
The current financial landscape presents itself as a true puzzle. Recently, we've seen the S&P 500 and the Nasdaq 100 break through new records, reaching historic highs that have left many analysts scratching their heads. This optimism isn't isolated, as other indices like the Nikkei 225 and the IBEX 35 Total Return have also joined the trend of record highs, demonstrating that the appetite for equities has returned strongly, even though the atmosphere remains quite tense.
Looking at the headlines, the reasons seem clear: stellar corporate earnings reports from the largest companies and hopes for a Middle East peace agreement . Indeed, Donald Trump's announcement regarding the suspension of assistance to ships in the Strait of Hormuz has fueled the idea that a deal with Iran might be imminent, injecting a dose of confidence into the markets. Furthermore, investors are anticipating that Kevin Warsh's potential appointment as Fed chair will definitively put an end to any further interest rate hikes.
The hidden risk behind the euphoria
However, it's not all rosy, and some view these figures with considerable skepticism. It's certainly curious that the stock market is soaring when we still have annual inflation exceeding 3% . While there's talk of swift truces in the geopolitical conflict, the reality is that the scars on the oil supply chain won't disappear overnight and will take months to stabilize.
There is a real fear that we are witnessing growth based more on euphoria surrounding artificial intelligence than on solid fundamentals. When assets rise at such a dizzying pace without real backing, the risk is that the house of cards will collapse, causing vertical drops in a matter of hours or even minutes. It is a dangerous scenario where blind optimism often comes at a price.
There are more than enough triggers for a collapse. On the one hand, any escalation of fighting in the Middle East could turn the tide. On the other, Trump's unpredictability and his urgency to avoid a catastrophic electoral defeat could generate political chaos that ultimately lands him in the dock of an impeachment trial driven by the Democrats.
Liquidity and the role of the Federal Reserve
We cannot ignore the elephant in the room: liquidity. The market is inflated by an amount of dollars that the Fed never actually withdrew, a trend that has been ongoing for some time . This was especially evident in March 2020, when Jerome Powell's unlimited stimulus sent stocks soaring to record highs while businesses were shut down or operating at half capacity due to the pandemic.
As for the foreign exchange market, the situation is different and more moderate. Here, the dollar calls the shots . The pattern is repetitive: when there are threats between the United States and Iran, crude oil rises, and consequently, the euro, the pound, and especially the yen plummet. In this context, the dollar has established itself as the safest haven for cautious traders.
Gold, meanwhile, continues to struggle to find a clear direction. While some dreamers hope to see it reach $6.000, the reality is that many bought at $5.600 in January based on overly optimistic forecasts. Currently, the precious metal is holding above $4.640 , recovering ground thanks to news related to Trump.
Monetary outlook and economic calendar
Looking at European currencies, the euro and the pound are showing moderate upward movement . For the euro to gain real momentum, it needs to break the 1.1765 barrier and head towards 1.1800, while the pound needs to surpass that level to confirm its strength.
The Japanese yen has had some scares, briefly strengthening during the Asian session in what appeared to be official intervention, but those gains evaporated within minutes, quickly returning to the lows . This demonstrates that volatility remains the norm in the foreign exchange market.
Looking at the calendar, the first week of May has been fairly flat. The ISM Services Index and job vacancies haven't moved the needle on the market. However, attention is now focused on the economy and, above all, on oil inventories, which remain the star asset and the driver of much of the current volatility.
The combination of record highs in US indices, unpredictable geopolitics, and massive residual liquidity creates an environment where [ the text abruptly shifts to a different topic:] Although the rebound has lasted three consecutive weeks, caution should prevail over euphoria to avoid being caught in a potential sharp price correction.
