Nvidia, Oil & Interest Rates: Why Markets Are So Reactive
00;00;35;15 – 00;01;15;28
Unknown
Hello and welcome back to another episode of Blue Chip NOW!. You have Daniel Dusina, chief investment officer, Matt Mondoux, senior financial advisor, and Dan Seder, managing partner. So today is Monday, May 18th. And the last two weeks, or really the last month have been somewhat unusually intense for financial markets. You’ve had oil spikes, big moves in Treasury yields, AI stocks wobbling depending on the day, a new Federal Reserve chair stepping in and continued and even more geopolitical tensions that are rattling everything from inflation expectations down to specific industry level stocks.
00;01;16;05 – 00;01;35;19
Unknown
So I’m going to unpack all those things I mentioned. I’d call them the five most meaningful topics that we’re watching closely right now. And I’m going to start with what’s going on in oil. Oil shock and the Strait of Hormuz crisis. You know why this matters is because it has become the single biggest macro driver in global markets.
00;01;35;21 – 00;02;03;14
Unknown
The the fear is pretty simple. And it’s that higher oil prices are starting to reignite inflation over the last couple of weeks. You’ve had a really hard time trying to get an accurate read on where tensions are at between the US and Iran, continued instability, some semblance of progress around ceasefires, but nothing concrete. And so the closure in the Strait of Hormuz has pushed Brant crude above $110 a barrel.
00;02;03;17 – 00;02;26;04
Unknown
That’s a pretty big move in the markets have reacted accordingly. Keep in mind the Strait of Hormuz handles roughly a fifth of the world’s oil supply. So even partial disruptions ripple through everything, gas prices, airline costs, manufacturing, shipping and ultimately consumer inflation, which we saw last week, the highest year over year reading on CPI since June of 2023.
00;02;26;07 – 00;02;52;21
Unknown
So, you know, the market is kind of reacting on a day to day basis. And there’s kind of this funky correlation. If you get bad news out of, out of the Middle East stocks down, oil prices up, Treasury yields up. Good news out of Iran. Oil prices down. Treasury yields down, stock prices up. So, it’s kind of been this, this, this cycle that we’ve seen been playing out for really well over a month at this point.
00;02;52;25 – 00;03;11;21
Unknown
Yeah. You know, it’s obviously oil’s been higher for longer. There’s really no signs of that dropping that really any time now. I mean they’re, they’re they’re, What does it seem like? We’re getting closer to a ceasefire than we were a month ago. And then you have this sort happening a tough time, you know, new fed chair.
00;03;11;24 – 00;03;43;26
Unknown
Now traders are starting to price and possible fed hikes through the inflation that we just really seemingly got under control. Not too long ago. Daniel, you have okay. So you have growth stocks getting hit. You have energy rallying. Discretionary got hit. The hardest. What does that mean for investors? I mean, we we don’t really make tactical shifts based on headlines over the short term, but maybe translate that back into the investors mindset, what they should be doing.
00;03;43;29 – 00;04;11;23
Unknown
Yeah. Well, I think it’s really interesting because this has been a selectivity driven market, meaning the first three months of this year you had the average stock by way of the S&P 500 equal weighted index outperform the cap weighted S&P. So that tells you there was more market breadth, more companies offering performance. As opposed to this concentrated, you know, seven stock market that we’ve seen for each of the last three calendar years.
00;04;11;25 – 00;04;34;12
Unknown
Even though there has been some thematic evidence of trading meaning, okay, as there’s more conflict, higher rates, high valuation growth, stocks get hit the hardest. That has been somewhat true recently, but at the same time, it hasn’t been true across the board. I mean, you look at cybersecurity firms, I mean, those stocks have continued to rip even when at high valuations.
00;04;34;12 – 00;04;54;03
Unknown
Everything else in a similar vein is getting hit. And so right now you’re getting this confluence of different things. Yes. There is some element of if your valuations are high and rates are expected to be higher for longer, we’re going to sell you off. But at the same time, we just got a fantastic set of results across the board for the S&P 500 by way of Q1 earnings.
00;04;54;03 – 00;05;14;05
Unknown
So I don’t think it’s as simple as some periods we’ve seen in the past where if there’s turmoil, we’re going to immediately sell all the high valuation stuff because it has been a lot more dislocated than that, at least over the last month or two. And our right now valuations, I mean, price has price has, moved in the right direction.
00;05;14;05 – 00;05;36;16
Unknown
But earnings have also moved in the right direction. So generally speaking and then just a simple yes or no. Are stocks across the board expensive. No. Average stock is not expensive. It’s actually below its ten year average. Adjusted PE cap weighted basis. Your most your largest firms have started to get a little more expensive again that that’s okay okay.
00;05;36;16 – 00;06;00;04
Unknown
So kind of related to what’s been happening in the Middle East. A direct byproduct of that is that we’ve had Treasury yields exploding higher. So ten year Treasury crossing above 4.6%. That’s a year to date high. It’s it’s it’s almost a one year high actually. So this matters because higher yields can end up threatening just about every asset classes or every asset class rather.
00;06;00;06 – 00;06;22;05
Unknown
And the other kind of an anecdote here is that we just, for the first time since 2007, got a 30 year treasury at auction that was above 5%. I mean, that’s almost 20 years without seeing something like that happen. And what that’s telling you is essentially the same thing that we just talked about with regards to the Strait of Hormuz closure.
00;06;22;05 – 00;06;44;13
Unknown
People are very concerned about a re ignition of inflation, and they’re pushing up their risk premium that’s required from longer dated bonds accordingly. So investors at auction were basically saying, hey, you’re going to have to pay me more than 4.5% for 75. For nine, you’re going to have to pay me about 5% to take on the risk of this 30 year debt obligation.
00;06;44;16 – 00;07;13;26
Unknown
So you can really view this as the gravity of financial markets. So yields rising. That just means borrowing costs are more expensive. Mortgages get pricier, corporate financing is tighter and same as we said with with regards to valuations. It gets harder for these high growth companies to justify the premium valuations that they have. Yeah I do what I think is fascinating when we’re going to talk about rates in a little bit, I’m sure, as we get into wars.
00;07;13;28 – 00;07;44;13
Unknown
But what I find fascinating is right when everyone had interest rates figured out, they’re going down, they’re going lower, they’re projected to go lower. All of a sudden you get unexpected headline risk and the market shifts. And now we’re even potentially talking about rate hikes, not rate cuts. And so I find that I find that fascinating I I’m so, so interested to see though, how oil prices have really amplified the bond.
00;07;44;13 – 00;08;13;28
Unknown
So yeah. And I think that’s I mean you have seen it depending on the day again, that correlation between oil prices up bond selling picks up as being crystal clear. And there have been very few periods over the last five years where you’ve had such a clear cut message. And that message is if we’re getting negative developments in the Middle East, oil prices are going higher, bond yields are going higher, stocks are going lower.
00;08;14;00 – 00;08;33;23
Unknown
What’s what’s so interesting? This is really a signal, I think a strong signal that the markets are concerned about inflation. Right. So it’s not just the US, Japan, UK, Germany, Germany all have their bond yields increase, which means, you know, their bonds sold off. But the US you know, with all this geopolitical conflict the US Treasury bonds are not a flight to safety.
00;08;33;25 – 00;08;52;08
Unknown
So investors selling them, choosing to go to commodities or oil or cash is is a pretty clear sign that, they are worried about inflation. And I ironic that the cash would be, you know, not you wouldn’t want to hold cash with inflation. But maybe people are just taking money, you know, off the side and put it on the sidelines.
00;08;52;08 – 00;09;13;09
Unknown
Yeah. Yeah I think that’s all very true. And again this you know, the challenge with this situation is that investors are almost reacting differently to the same developments. So this has really been going on for what I mean almost two months at this point. You used to get progress on ceasefire dialog and the market wouldn’t believe it.
00;09;13;09 – 00;09;33;18
Unknown
But then all of a sudden, magically, as we turn the calendar the second quarter, the market just magically buys into this ceasefire narrative. That’s kind of been more present. And by and large, they’ve kind of believed it. But that doesn’t mean that we’re out of the woods. You are still getting days like today where you’re seeing a massive amount of choppiness and dispersion across the market.
00;09;33;20 – 00;09;56;10
Unknown
So I think that until you get some reliable level of guidance on what the situation in the middle East is, you’re going to continue to see volatility. Now, the last thing I’ll say on the topic is that we had the benefit of a very strong set of earnings in the first quarter of 2026, much, much meaningfully higher than I think a lot of folks were expected from a year over year growth perspective.
00;09;56;10 – 00;10;24;08
Unknown
So that has served to be a bit of a cushion, but also a little bit of a proof point in a pretty volatile period. On the macro front. So kind of on that topic, you’re starting to get the artificial intelligence rally in the equity market that will be facing its first real stress test. I mentioned that I guess the proof points we received from the company level thus far on the first quarter set of financial results was broadly very good.
00;10;24;10 – 00;10;47;18
Unknown
And you’ve had artificial intelligence enthusiasm powering the stock market higher almost single handedly for the last three calendar years. Right. But now that you’ve got this geopolitical conflict that has led to potential inflation and thus rates staying higher, you have people that are now kind of wondering what if interest rates stay higher while AI valuations stay extreme.
00;10;47;18 – 00;11;28;07
Unknown
So that’s the concern that’s starting to trigger some some pretty meaningful volatility in call it semiconductor and other mega-cap tech stocks. Now for this week in particular, Nvidia earnings on Wednesday are going to be one of the most anticipated events on Wall Street because investors really view Nvidia as the heartbeat of the AI boom. And I think the the crystal ball esque question that we quite frankly don’t have an answer to, but can try to answer around, you know, when will the massive AI spending actually start to show up in results that ultimately, if you had to ask one question across investor base, that would be what people are asking about?
00;11;28;09 – 00;11;49;14
Unknown
Let’s be clear, I guess, what results are you looking for? So I would argue, I think a lot of people would argue that GDP in the United States has been directly down and descended from the AI boom, so there’s plenty of companies, with the construction of data centers, whether they be chips, power services, you know, down the line that have benefited, it’s showing up there.
00;11;49;20 – 00;12;15;01
Unknown
I think that the bigger question and maybe the one the question really revolves around is, okay, well, what about the corporations that are using AI as a tool where it’s an expense for them? What are they going to see the benefits? And Daniel, you talked about, as it relates to the markets, you talked about broad participation and making sure that you’re looking at the market of stocks and not just the stock market.
00;12;15;03 – 00;12;42;05
Unknown
When I think in the stock market, I think of an idea being, what, 80% of the S&P 500 or thereabouts, it’s it’s I don’t know, the numbers, but it’s it’s out there. And so convenient disappoints even slightly. Things can get pretty volatile. And that that impacts the stock market like the S&P 500. But that’s why it’s important to look broadly and why we use a benchmark like that equal weighted index.
00;12;42;05 – 00;13;26;22
Unknown
Because that gives you an idea of what what I call it, the market of stocks is actually doing not just an 80%. One company in the S&P 500. That 8% controlling interest. It really you got to look beyond just this is, handful, right? Yeah. And I think, look, you’re my proof point at least right now is been that if you took all 503 S&P 500 companies and you looked at what the analysts expected from the perspective of earnings per share in the first quarter and what it actually was, the actual figures were almost 20% higher than what the analysts expected.
00;13;26;24 – 00;14;02;03
Unknown
To me, that’s not that’s not isolating. One company that’s looking at the 503, right, in aggregate. And what that tells you that results were generally very good. So yes, from a from a stock market perspective, if you get disappointing results from Nvidia it’s going to look like the market’s underperforming. Sure. Of course. But realistically when you get broad based earnings growth, broad based earnings participation that can maintain upward market trajectory amidst all this chaos that’s happened this year, to me, that’s as good of a proof point and vote of confidence from investors that you can ask for.
00;14;02;05 – 00;14;32;08
Unknown
So another just to add another wrench into things. We have a new Federal Reserve chair. So you could you could argue that, yes, interest rates are top of mind right now. And based on what expectations are right now, it’s really hard to get a grasp on on rate cuts versus rate hikes and timing thereof. But what I think is, is most important, right now is you have this individual, Kevin Warsh, that is coming in.
00;14;32;10 – 00;15;01;22
Unknown
He has prided himself on being Uber independent. He has been critical of administrative office, executive branch, involvement in the Federal Reserve operation. But at the same time, you still have Trump calling for immediate rate cuts. So what markets are trying to understand is can we take him, Kevin Warsh at face value or how much factoring in of the Trump effect do we have to place.
00;15;01;22 – 00;15;22;24
Unknown
Right. And you’re seeing interest rates chop back and forth partially due to this in addition to the geopolitical madness that we’ve had. So it’s it’s very clearly a top of mind situation for investors right now. And it does change the game a little bit. I think it’s really hard for Morris for anyone in that role, whether it’s him or Jerome Powell.
00;15;22;27 – 00;15;46;11
Unknown
We’re all human. At the end of the day, and the influences that others have on us can’t be looked past. And Trump is, pretty, pretty, pretty loud voice in terms of what he wants. And he’s going to address those issues, and he’s going to look for ways to move his agenda forward. And so I think it’ll it’ll be tough for any person.
00;15;46;11 – 00;16;18;06
Unknown
It’s great that he’s saying the right things. And I feel like, you have to say that you’re objective and you’re independent when you go into a role like this. But at the end of the day, I think it’s tough. It’s just a tough environment to be in that. It is, it is. And I guess from an independent perspective, the way I look at this is, yes, we’ve gotten two straight months of pretty strong data on the labor front, but we also have CPI year over year at 3.8% that as is at its highest level since June, June of 2023.
00;16;18;08 – 00;16;47;12
Unknown
So to expect a rational fed chair to come in and immediately cut rates 25 God forbid 50 Bips, that’s just irrational. I don’t think you can reliably even entertain rate cuts until you see an explosion in job growth or a complete resolution in conflict in the Middle East. I think the best case scenario for him right now is the market’s doing his job with the ten year and the 30 year increasing correct year.
00;16;47;15 – 00;17;15;25
Unknown
So so those are going to flow through. We’ve already seen the fact that mortgage rates. So in some way the market’s been doing this job for him without an official stated hike. Yeah. Let’s hope that we can, you know remain relatively stable with that. Yeah. And I think just to to wrap things up here, the fifth story, if you will, I think it’s just the broad idea that markets are surviving all of the tariff and geopolitical chaos, much better than we would have expected.
00;17;15;27 – 00;17;38;22
Unknown
The question, I guess, is that, you know, can markets continue to outpace with all of these different facets on the geopolitical side, having a hand in, time will tell. But like I said, you know, the proof points from the company level have been good. But in addition to what’s going on in the Middle East, you have some renewed dialog on on the US-China relations, specifically related to Taiwan.
00;17;38;22 – 00;18;04;05
Unknown
And that’s starting to flare up again. You also have, you know, some some tariff talk between the US and the European Union specifically related to the automotive segment. So I think you have all of these different elements that are starting to pressure markets. And I think what investors are wondering is how can markets continue to grind higher with all of these different variables being introduced into the equation?
00;18;04;05 – 00;18;34;05
Unknown
Earnings, earnings I mean is it not earnings. But yeah earnings disappoint or they they’re not at the level that we want them to to be at. Because the stock market is a discounted mechanism for the future. It’s not about earnings in the moment. It’s about guidance and the direction of earnings. But I think at the end of the day when you when you look at US-China in this chess match that is constantly being played, really it comes down to Taiwan and what’s going to happen.
00;18;34;07 – 00;18;59;19
Unknown
Some of the, some of the, rhetoric from the Chinese were, hey guys, you’re going to need to approach this very carefully because how you approach Taiwan is, is going to be, it’s going to matter. And I just wonder at what point is that going to flare up? And I think US-China relations and a flare up there becomes much more impactful to the markets.
00;18;59;19 – 00;19;28;16
Unknown
And I’m not using that as a bearish argument. And if it does and stocks sell off, it’ll likely be temporary. And a headline I just wonder where that’s going to go. I think that’s the next big geopolitical landmine that’s sitting in front of us in a time of timeline time frame on that is unknown. Yeah, well, the reality is that Taiwan has become so important because of semiconductor production.
00;19;28;18 – 00;19;55;08
Unknown
And keep in mind, the US market is dominated by information technology, which has become increasingly dominated by AI, which is increasingly dominated by semiconductors. So you can do the math there. And yes, that would be a very, very impactful development to have whichever direction it goes, there work being done to brought that, bring some of that, that work here.
00;19;55;10 – 00;20;21;12
Unknown
There is and there has been over the last five years. But realistically, that is a slow moving charter boat that, is not going to happen overnight. You can try to onshore chip production as much as you want. We have, as a country spent large sums of money to onshore some of that production. You can look back to 2022, the big deals with Intel and Arizona.
00;20;21;14 – 00;20;40;15
Unknown
And I mean also the like what I believe is a $6 trillion market cap. Like they’re not getting without more global chip manufacturing. So this will be broadened beyond Taiwan because it has to because its pipeline extended these stocks anyways. Yeah. Yeah. And it’s I guess the short answer, Dan, is it’s it’s just not going to happen overnight.
00;20;40;15 – 00;21;02;18
Unknown
Which is why if you got any level of meaningful disruption in Taiwan, you know, that would be taken very negatively. Whether or not that ends up being persistent, I think is a whole different question. But it’s a touchy subject and I think everybody knows it is China, not a customer of Taiwan. Like so. So what are they going to disrupt their own chips?
00;21;02;21 – 00;21;27;07
Unknown
Yeah. I mean, is they have a vested interest in facilitating that pipeline. But the short answer is everybody has a vested interest in keeping that train rolling. So when when they talk about approaching it with caution, they’re probably talking to themselves as well. Right. Okay, I’ll close out. But just to recap, you know, we talked about five of what I would call the biggest market moving stories over the last 2 to 4 weeks.
00;21;27;10 – 00;21;48;23
Unknown
Oil price prices surging amid the conflict. Treasury yields moving meaningfully higher. I rally getting tested. New fed Chair Kevin Warsh and markets being surprisingly resilient despite all of these geopolitical and inflationary headlines. So thanks for tuning in, as always. Until next time. We appreciate your listenership.
