Bull Market or Bubble? AI Rally, Oil Shock & Fed Signals Explained

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Hello, and welcome back to another episode of Blue Chip NOW! I am Daniel Dusina, chief investment officer, and Matt Mondoux, senior financial advisor.

And so I’ll give you a rundown of what we’re going to talk about today. But,

This episode comes with a bit of a warning. Markets looks strong right now, but the foundation underneath them is getting increasingly complicated.

So over the past, let’s call it two weeks, we’ve seen a powerful rally in stocks, especially in Mega-Cap tech

driven by the ongoing boom in artificial intelligence. At the same time, we have oil prices that are surging, geopolitical tensions continue to be ever present, and the Federal Reserve is sending some of its most divided signals in years. So the biggest question that we’re getting asked right now is, are we in a durable bull market or something more fragile?

So I have a few different segments that Matt and I will talk through today, but, let’s get into it. So first segment I think is is a, natural one, the artificial intelligence fueled market rally. This is certainly continued to grab headlines. Stocks are up in a very big way. Over the last couple of weeks, U.S. markets have posted one of their strongest stretches since the early pandemic recovery period.

More specifically, if you look at the month of April, that was the strongest monthly return for the S&P 500 index since November of 2020. So if you just look at the headline, things look great. But here’s the nuance. The rally is being driven by a surprisingly small group of companies. And so this is once again consistent with that return profile that we saw during calendar years 2023, 2024 and 2025.

So you’re getting back into that concentrated market environment from a return perspective. And that’s very different than the experience we had during the prior six months. And I know we’ve talked about, that concept at length in this podcast that we saw this broadening out of returns, starting last November, pretty much through the end of last of this March.

But now that you’ve gotten some semblance of at least perceived ceasefire in the Middle East, reasonably good earnings coming out of the first quarter across corporate America, you’ve kind of gotten a return to this concentrated return environment. So, Matt, I don’t know if you want to want to provide any puts and takes with that or any observations that you have.

Yeah. You know, it was it was kind of surprising in the first place, I think, when you saw some of the large cap tech underperform or even sell off, because I really do struggle to see something that’s, that’s very much a domestic operation or story as far as AI data center spending. And then what’s going on in the Middle East?

I think that the most logical maybe, rationale or

explanation for me is just maybe a reduction in like margin on accounts. So as people have levered up their portfolios to buy more stocks, generally that money again is look to the large cap tech stocks. And just I think as people reduce just market exposure.

That was probably one of the reasons why we saw them. Wonderful form of that. Because again, I mean, this is a very much a domestic story, you know, somewhat in the short run, probably insulated from the more few geopolitics. Yeah, I would agree with you. And I mean, keep in mind, to your point, the earnings impact of all of this, you know, the the shares that declined, we had no visibility into any tangible earnings impact.

Right. And, you know, on the flip side, last week was the heaviest week of earnings season for the first quarter of 2026. And I mean, the results have been very good. So it’s almost like investors were looking for some sort of excuse or, or prompted via, call it margin balances or whatever, have you to reduce on a relative basis, position sizes rotate around diversified portfolios, which I view as healthy.

I mean, yeah, good thing to see those things. So I mean, I market wise. Yeah. And you are getting an increased level of scrutiny on some of the artificial intelligence spend so specific to those hyperscalers like, alphabet, Amazon, meta platforms. Microsoft, you know, you are getting a high degree of scrutiny around the level of spending valuations.

Can you justify the spending with results? And I think that’s going to be a theme that continues. But I think, you know, right now, even though investors have been Uber focused on AI and earnings, the force that’s been building in the background is oil. And, you know, second segment being focused around oil geopolitics and inflation. Pressure I think is probably the most important topic in the market today.

And the oil story of course, became front and center. You know, at the beginning of March, once conflict flared up in the Middle East. But, right now, you know, oil prices might sound like a niche issue, but really, they ripple through the entire economy. So, I mean, oil of course, affects transportation costs, but also manufacturing and heating and energy bills and honestly, the everyday price of goods.

So oil is a very, very direct feed into inflation. I’ve spoken about this at points in the past, how oil or energy itself is not a big component of the consumer price index. I think it’s about 6%. But the indirect impact via, again, things like transportation costs or you know what? Prices get baked into the sale of goods, you know, then it becomes more of a real issue.

So right now, what the market is trying to wrestle with is underlying growth in the US economy. That’s slower but healthy. And all of a sudden you have potential for an inflation flare up. Right. Which that is what’s been challenging for investors to discern right now. Yeah. And I mean, the risk here, you know, the stagflation risk, it’s been, I think, decades since the US has really battled stagflation.

But you know, this, you know, higher for longer, gas prices are not a good thing. I mean, that that pulls a lot of spending discretionary spending away from most households. It’s really, you know, it hits lower income households a lot harder than higher income house households. We already know higher income households are women carrying the economy.

You know, for, for quite a while. So, yeah, it’s hard to see. This is, you know, that the economy, you know, hanging in there for very long with $5 a gallon. Yeah. And I’m and I’m not sure if this ends up being a notable or meaningful impact on the simply just on the price per barrel of oil.

But we did last week get news that the United Arab Emirates is planning to leave OPEC. Plus after, let’s call it six plus decades of membership. The reason that this could end up being somewhat meaningful, from a price feed through perspective, is because for the last few years, the United Arab Emirates has been of a position to increase supply flow amongst OPEC countries.

Whereas call it the de facto leader of OPEC. Saudi Arabia has been very much in favor of capping supply, thus artificially boosting the price per barrel of oil. If you have the UAE splitting out and being less capped from a production perspective, if you look out over the next 12 to 18 months, perhaps that’s one call it release valve for production and thus some downward relief for the price per barrel of oil.

I don’t know, I just think that’s an interesting situation to monitor. And also, you know, amidst a multitude of factors disrupting oil, right now, I mean, I think it does actually serve to position the United States as, puts the United States in a position of power because of relative stability versus all the disruption that we’re seeing coming out of the Middle East.

So I guess, you know, that’s one part of this to monitor. But more importantly, you know, what does the Federal Reserve do in this environment? Right. They are, expectations of. Yeah, they are essentially walking a tightrope now, even more so than before. And even though the fed met last week, in what was Jerome Powell last fed meeting at the helm of the Federal Reserve?

I think the decision on the surface was very simple. They held interest rates steady. So why are bond yields rising if the fed held rates steady? Yeah. I mean the the reason is inflation expectations, you know, which is a component of the interest rate went up. So so as you’ve had inflation expectations increase it’s natural to expect the rate.

Yeah the rates to increase. And it all links back to why the fed didn’t cut rates. I mean they had a great study. So yeah long story short you’re watching bond yields rise because the expectation of higher inflation, is really kind of starting to settle into the bond market now. Now we had dropped to pretty low levels.

I think we were like, you know, inflation expectations were more fairly low. Heading into the conflict with Iran. But they finally caught up about a quarter of a percent. So so they are taking up. Yeah. Yeah, yeah. I mean, it’s the message is clear in that we’re not done fighting inflation on the other side of things. You know, if you look at the, the problem, if the fed were to come in and try to combat inflation early instead of, you know, potentially late, the US economy is growing, but it’s it’s been a slower growth environment.

I mean, you had about a half percent of GDP growth in the fourth quarter of 2025. We just got about a 2% figure for the first quarter of 2026. So I mean, not overly concerning, but it’s just not an environment where you can go full bore into fighting inflation and bump up the fed funds rate by 50 basis points overnight.

So the fed is caught in this balancing act. You know, on the one side you’ve got inflation risks especially coming from energy. On the other side you’ve got economic slowdown concerns. And and I think markets are reacting to that. So you know again this is an interesting balancing act that the fed has to undertake. But if I take a step back and look at the full picture, okay, across different asset classes, we’re seeing very mixed signals stocks pretty strong but narrowly driven by tech bonds under pressure.

As yields are rising, commodities have clearly exhibited strength and continue to be in a position of strength led by oil and volatility, at least over the last month. Relatively low. But there is clear potential for that to spike if something changes. You know, I think investor behavior does reflect this tension. On one hand, you’ve got continued enthusiasm for artificial intelligence and growth stocks.

But on the other hand, you are starting to see at least year to date money flowing to more defensive areas. So, I think investors are wrestling with a lot right now. So even though there are a lot of support, supportive elements to this market, it’s not one of your classic broad based bull markets. It’s very selective.

And as we’ve said at many points in the past, that selectivity matters. So I guess in light of that, the one question I have, which I feel like rears its head at some point every year, is the 6040 portfolio dead when your 60 is overly concentrated in 5 to 7 names and you’re 40? Is is not necessarily providing you tangible benefit.

Yeah. You know, I’ve heard this argument, you know, kind of heading out of the financial crisis. So when interest rates were artificially low, the fed funds rate was at zero. This is something you’ve been hearing for for a decade plus. I mean, I don’t I would almost be accurate with the 6040 portfolio has been dead. I think if you’re a long term investor, I don’t think you could just park your money in a 6040 portfolio or you really haven’t been able to, for a long time.

I mean, you had all all the, you know, QE coming out of the financial crisis. Stocks had pretty low volatility. We haven’t had a ton of volatility. We’ve had years where there’s been some periodically but not over a sustained multi-year period. So yeah I mean my argument is the 6040 portfolio hasn’t really been you know, to just bury your head in the sand and then forget it.

And depending on your financial circumstances, that’s, I believe, any useful asset allocation, for most people, for. Yeah. I mean, I would agree with a lot of that. And to me, you know, if I asked that question, is the 6040 portfolio dead in 2026, I would rebuttal with a question. It’s okay. Well, what is in that 60 and what is in that 40?

Because there is some level of FOMO. The fear of missing out by having a 6040 asset allocation target. Hindsight is 2020, in which the last 15 years have been an impressive period for your 60%. Pretty much however you’ve had it allocated. But I think you have to be thoughtful around what that 60 holes. I mean, I don’t think blind indexing that for most individuals is beneficial.

And then same with the 40. I mean, if the 40 is just going to be allocated to what is for us individuals and investors, the most broad based index in the bond market, the Bloomberg U.S aggregate, is your 40% of your portfolio going to be almost half, you know, U.S. Treasury bonds? I don’t know if that’s necessarily appropriate either.

At least just my opinion for what recommendations I would make. And I think like the whole idea, the 6040 portfolio, you know, there was some, you know, evidence from volatility perspective. It was great. But I mean, where it was really awesome was you know, coming out of the early 80s when interest rates peaked all the way to the mid 20 tens as interest rates foul, do, you know, quantitative easing and, and the zero interest rate policy that the fed had come out of a crisis.

So you just had a really great period of time, you know, 30 some almost 30 years where it was, you know, you couldn’t miss it, right. Volatility in bonds, bond prices that continued to appreciate over decades. Yeah. Set it and forget it. Right. So I mean I again like this is a question that gets asked almost every year at some point and at some points it’s warranted and others it’s just not, this is all very much an individualized set of decision making that needs to happen.

Right? So maybe just to to recap, you know, there’s a fair amount going on underneath the hood right now, but I would say the main, the main topics that we’re hearing about and that we try to unpack today is, number one, artificial intelligence fueled market rally. You know, where do we go from here? Second segment oil geopolitics and resultant inflation pressure.

Segment three talking about what that means for the Federal Reserve. And then fourth and finally, you know, what does this mean for an average investor’s portfolio? And is the 60 portfolio actually providing any benefit. So I think that’s all we have for you today. As always, thanks so much for tuning in to another episode of blue Chip now, and we look forward to speaking with you again soon.