The benchmark for global food commodity prices rose for a third consecutive month in April, hitting its highest level since early 2023, as Middle East supply disruptions, elevated energy costs, and tightening supplies of certain agricultural products appear to be driving the next leg higher in global food prices.
This is a major risk we have warned about throughout the U.S.-Iran war, as energy and supply chain disruptions spread quickly through fertilizer, diesel, freight, biofuels, grains, and vegetable oils. We even treated readers to a special food debate late last week to examine how the conflict could produce a broader food-inflation shock later this year.
The United Nations' Food and Agriculture Organization's FAO Food Price Index, which tracks monthly changes in the international prices of a basket of globally traded food commodities, averaged 130.7 in April, up 1.6% from its revised March level and 2% higher than a year ago. This places the global food index at its highest level since February 2023.
The largest move in the food index came from vegetable oils, where prices jumped 5.9% to the highest level since July 2022. Palm, soy, rapeseed, and sunflower oils all rose, supported by stronger biofuel demand, higher crude prices, and tight Black Sea supplies.
"Despite the disruptions linked to the crisis in the Strait of Hormuz, global agrifood systems continue to show resilience. Cereal prices have increased only moderately so far, supported by relatively strong stocks and adequate supplies from previous seasons. Vegetable oils, however, are experiencing stronger price increases, driven largely by higher oil prices, which are increasing demand for biofuels and putting additional pressure on vegetable oil markets," said FAO Chief Economist Máximo Torero.
Here is how the other subcomponents performed last month:
The FAO Cereal Price Index rose by 0.8 percent from March and was up 0.4 percent from a year ago, reflecting higher prices across major cereals, except sorghum and barley. World wheat prices increased by 0.8 percent, due to concerns over drought in parts of the United States of America and a higher likelihood of below-average rainfall in Australia. The increase was further reinforced by expectations of reduced wheat plantings in 2026, with farmers shifting to less fertilizer‑intensive crops amid high fertilizer prices – driven by elevated energy costs and disruptions associated with the effective closure of the Strait of Hormuz.
Global maize prices increased by 0.7 percent, underpinned by seasonally tighter supplies and weather-related concerns in Brazil, as well as dry conditions affecting sowing in parts of the United States of America. Additional upward pressure came from firm ethanol demand amid elevated crude oil prices and ongoing concerns over fertilizer affordability. By contrast, world sorghum prices dropped by 4.0 percent, largely due to weaker global import demand and improved supply prospects in key producing and exporting countries.
The FAO All Rice Price Index rose by 1.9 percent in April, driven by higher Indica and fragrant rice prices, reflecting increased production and marketing costs in most rice-exporting countries following the surge in the prices of crude oil and its derivatives.
The FAO Vegetable Oil Price Index increased by 5.9 percent from March, reaching its highest level since July 2022. The rise was driven by higher prices of palm, soy, sunflower and rapeseed oils. International palm oil prices rose for the fifth consecutive month in April, largely underpinned by prospective stronger demand from the biofuel sector, supported by policy incentives in several producing countries and higher crude oil prices. Additional upward pressure stemmed from concerns over lower production in Southeast Asia in the coming months.
The FAO Meat Price Index reached a new record high in April, rising by 1.2 percent from March and 6.4 percent from a year ago. World bovine meat prices climbed to a new peak, underpinned by higher export quotations in Brazil amid limited supplies of slaughter-ready cattle, reflecting ongoing herd rebuilding. Pig meat prices also rose, driven by firmer quotations in the European Union amid rising seasonal demand, though partly offset by lower prices in Brazil due to ample supplies.
By contrast, the FAO Dairy Price Index declined by 1.1 percent from March, mainly reflecting lower international quotations for butter and cheese amid abundant milk supplies in the European Union and stronger-than-expected late-season output in Oceania.
The FAO Sugar Price Index also dropped, down 4.7 percent from March and as much as 21.2 percent from a year ago. The decrease was largely driven by expectations of ample global supplies in the current season, reinforced by improved prospects in key Asian producing countries, notably China and Thailand. The start of the new harvest in Brazil, the world’s largest sugar producer, further contributed to the downward pressure on sugar prices.
The question now is whether the latest rise in global food prices marks the early stage of a much larger move higher, as surging diesel and fertilizer costs begin to filter through the agricultural complex.
How Bad Will It Get? Watch the food debate here.
Tyler Durden Sun, 05/10/2026 - 16:20Trump calls Iran's peace proposal response "totally unacceptable"
Iran warns of 'decisive, immediate' response to British or French warships approaching Hormuz Strait.
Iran responds Sunday to US peace proposal, finally submitting something official to Pakistan. Details not initially disclosed. Trump TS: Iran "playing games with the United States."
IRGC new warning: will unleash "heavy attack" on US bases in region if more Hormuz aggression persists.
* * *
Trump Says Iran Response "Totally Unacceptable"President Trump has just issued a statement on his TruthSocial feed rejecting 'unacceptable' Iranian proposal for ending war.
"I have just read the response from Iran’s so-called “Representatives.”
I don’t like it — TOTALLY UNACCEPTABLE!
Thank you for your attention to this matter."
Iran offered to transfer some of its stockpile of highly enriched uranium to a third country, but rejected the idea of dismantling its nuclear facilities, the Wall Street Journal reported.
Iran disputed the report, according to Iran’s semi-official news agency Tasnim.
And with the fragile ceasefire still holding for now, the odds of a peace deal by the end of May have plummeted.
Iran: We'll Immediately Strike French & British if they Approach StraitIran has newly warned of "a decisive and immediate response" to any deployment of European military vessels in the Strait of Hormuz, and has further declared that the Islamic Republic alone controls security in the strategic waterway. Deputy Foreign Minister Kazem Gharibabadi issued the warning Sunday in a post on X after France and Britain announced plans to deploy warships to the region.
"Whether in times of war or peace, only the Islamic Republic of Iran can establish security in this strait and will not allow any country to interfere in such matters," he said.
Gharibabadi said France plans to deploy its flagship aircraft carrier, the Charles de Gaulle, to the Red Sea and Gulf of Aden, while Britain plans to send a warship to the area under the stated goal of protecting freedom of navigation. Already these Western allied assets are moving through the Suez Canal as of days ago.
"Any deployment and stationing of extra-regional destroyers around the Strait of Hormuz, under the pretext of protecting shipping, is nothing but an escalation of the crisis, the militarization of a vital waterway, and an attempt to cover up the true root of insecurity in the region," he stated.
Iranian lawmaker Ebrahim Rezaei says Tehran’s “restraint is over” and any aggression against Iranian vessels will be met with a heavy and decisive Iranian response against American vessels and bases.
🔴LIVE updates: https://t.co/4wl9kYw8g4 pic.twitter.com/QckEP0allp
But France and Britain have previously sought to clarify that their warships will remain largely in a background support role when compared to the US naval blockade in the Gulf of Oman region. Their ships would only directly join Persian Gulf operations only once the war ended, according to reports.
Trump: Iran is Playing Games With the United StatesNew Sunday Truth Social statement soon on the heels of Tehran submitting its response to the US peace proposal, via Pakistan:
Trump said Iran had been "playing games with the United States, and the rest of the world, for 47 years," adding that it had been "laughing at our new GREAT AGAIN country," but stressed that "they will be laughing no longer!"
Iran Finally Responds To USAfter days of waiting, Iran has submitted its response to the latest US peace proposal to mediator Pakistan, despite the recent flare-up in renewed exchanges of fire in the contested Strait of Hormuz this past week.
"Iran has submitted its response to the latest US proposal to end 10 weeks of war, the state-run Islamic Republic News Agency reported on Sunday, without providing any further details," Bloomberg confirms in a fresh headline. "Tehran hasn't yet given any public indication it would accept President Donald Trump’s plan that stipulates Iran permits passage through the Strait of Hormuz and Washington ends its blockade on Iranian ports in the next month."
IRAN REPLY TO US PROPOSAL INCLUDES ENDING WAR ON ALL FRONTS: TV
This comes as Qatar's PM has warned Iran that using the Strait of Hormuz as a pressure card, to choke the global economy, "would only lead to deepening the crisis" - and amid reports there could still be sporadic attacks on Gulf countries like the UAE. According to more of the limited details:
Sources in both camps have told Reuters the latest peace efforts are aimed at a temporary memorandum of understanding to halt the war and allow traffic through the Strait of Hormuz while they discuss a fuller deal, which would have to address intractable disputes such as Iran’s nuclear program.
The latest from Iran's president:
President Trump told Fox News days ago, "They want to make a deal. We've had very good talks over the last 24 hours, and it's very possible that we'll make a deal." He had said if this happens "it'll be over quickly" and oil prices will plummet.
IRGC Fresh Warning on US BasesIran's Islamic Revolutionary Guard Corps (IRGC) has warned any attack on Iranian oil tankers and commercial ships will be met with assaults on US bases and "enemy ships" in the region, Al Jazeera reports.
"Warning! Any aggression against the oil tankers and commercial vessels of the Islamic Republic of Iran will be met with a heavy attack on one of the American centers in the region and the enemy’s ships," the IRGC Navy said in the statement.
“Iran will no longer allow passages that are harmful to its interests”
Brigadier General Akrami Nia, the spokesman of the Iranian army, says countries that comply with US sanctions against Iran will surely have problems crossing the Strait of Hormuz. pic.twitter.com/6EZ6NWsZse
Tehran is accusing the US side of severely violating the ceasefire earlier this week, by firing on and disabling two Iranian-flagged tankers trying to reach Iranian ports. State media reviewed of these hostile incidents:
In a statement, the spokesman for Iran’s Khatam al-Anbiya Central Headquarters said the “aggressive, terrorist and marauding US military” had targeted an Iranian oil tanker sailing from Iran’s coastal waters near Jask toward the Strait of Hormuz, as well as another vessel entering the strategic waterway near the UAE port of Fujairah.
The spokesman also said civilian areas along the coasts of Bandar Khamir, Sirik and Qeshm Island came under aerial attacks carried out “with the cooperation of some regional countries.”
The IRGC further said it will respond "powerfully and without the slightest hesitation" to any aggression or attack. Indeed there are reports that during the past week's skirmishes Iran fired on three US warships seeking to exit waters of Iran's coast.
Ayatollah Meets With Military CommanderWe reported earlier that in an official update Iran said that Supreme Leader Mojtaba Khamenei had been 'moderately injured' but is recovering, and he had met with the president of the Islamic Republic. On Sunday he also met with a top military commader, per state Mehr, which writes: "In a meeting with Leader of the Islamic Revolution Ayatollah Seyyed Mojtaba Khamenei, Commander of Khatam al-Anbiya Central Headquarters Major General Ali Abdollahi presented a comprehensive report on the preparedness of the powerful Armed Forces of the country to confront enemies' strategic mistake."
via MehrAccording to more of the state readout:
Abdollahi said “all fighters of Islam” possess high readiness in terms of morale, defensive and offensive preparedness, strategic plans, and the equipment and weaponry required to confront hostile actions by the “American-Zionist enemies.”
He warned that if the enemies commit any “strategic mistake, aggression, or invasion,” Iranian forces would respond “swiftly, intensely, and powerfully.”
The commander also assured the Leader that the armed forces would, “with full obedience” to his orders, defend “the ideals of the Islamic Revolution, our beloved land Iran, sovereignty, national interests, and the brave Iranian nation until the last breath and to the death.”
During the meeting, Ayatollah Khamenei praised the country’s armed forces and issued new directives for continuing action and confronting enemies decisively following the 40-day US-Israeli war against the country.
The Wall Street Journal wrote Saturday of the Ayatollah, "A government official claimed Khamenei, who hasn't been seen in public since that attack, is now in good health." However, there's still a lot of speculation on his role in national decision-making, and over whether he will ever make a public appearance.
Tyler Durden Sun, 05/10/2026 - 16:20Yesterday when discussing China's unexpected flip-flopping on its decision to order local banks to ignore the latest US sanctions on Chinese, followed days later by a demand that they pause loans to sanctions refiners, we highlighted something remarkable: in the aftermath of the Strait of Hormuz blockade, which throttled the transit of ~10% of global oil and sent physical prices soaring to record highs (especially for Dubai crude), resulting in a windfall for European refiners thanks to soaring gasoline premiums...
... the reaction in China was a mirror image, as already razor-thin independent refiner (teapot) margins plunged to record negative.
The reason for the margin collapse was China’s domestic fuel policy: it has long been Beijing's policy to soften price hikes to help shield consumers and avoid social unrest; which while beneficial to end consumers is catastrophic to refiners and processors who are prohibited from passing on rising costs. In other words, Chna’s "energy security" was the dominant theme, and if it meant an entire industry has to suffer huge losses if it continues to purchase oil and process it into various product grades.
Ordered to process as much available inventory as possible, that's what the refiners have done, and refining rates in Shandong province, China's hub for smaller refineries known as teapots, ramped up over April to the highest level in almost two years, as processing margins cratered to record negative levels meaning refiners are losing record amounts on every barrel they process.
“I would not be surprised if the teapots are prioritizing politics over economics with an eye to their long-term survival,” said Erica Downs, a senior research scholar at Columbia University’s Center on Global Energy Policy. “They may be calculating that if they do their part to help China weather the energy crisis, then maybe they will build up some goodwill in Beijing.”
While Downs is right, and teapots are prioritizing politics, they are also certainly keeping an eye on economics to the extent they can avoid Beijing's wrath, and predictably the logical consequence of this centrally-planned policy to force "independent" refiners (who are not really independent if they have to do whatever Beijing instructs them) to make fuel at record losses to ensure energy security, is for them to slash purchases of Iranian crude.
Sure enough, Chinese crude oil imports have plunged: according to Vortexa, China's April imports plunged to a multi-year low of just 8.2 million barrels a day, down by about a quarter from a prewar level of around 11.7 million. The 3.5-million barrels a day swing almost matches the total consumption of Japan and is double the amount supplied by the United Arab Emirates pipeline that circumvents Hormuz.
As Bloomberg's Javier Blas writes overnight, "simply put, it’s huge, perhaps the second- or third-largest factor rebalancing the oil market today, behind only Saudi Arabia’s own pipeline bypassing the strait and the use of the strategic petroleum reserves of the US and Japan."
The import drop might make sense if Chinese commercial inventories were falling sharply, or if Beijing had tapped its strategic petroleum reserves. But neither appears to be happening. Instead, commercial stockpiles have continued to increase in recent weeks, according to satellite data (of course, China is well known to manipulate all data and with the bulk of its 1.4 billion in strategic oil reserves located underground, it is impossible to trace flows definitively)
Meanwhile, as imports have collapsed, inventories at sea have piled up: Kpler reports that there are now about 16 million barrels on ships anchored in the Yellow Sea off the Chinese coast, almost 40% higher than the level prior to a US blockade of Iran’s ports in mid-April as oil that was ordered previously remains unused.
There has been another complication: after the Iran war broke out, Beijing banned exports of refined products, effectively allowing refineries to process less crude to meet domestic demand. But the policy has now been reversed, suggesting the country sees enough fuel availability.
In any case, in recent weeks, Blas writes that amid this collapse in Chinese imports, industry executives have noticed something odd: Chinese state-owned oil companies have been reselling some of their oil cargoes to European and Asian rivals. The behavior suggests surpluses, which is "odd" to say the least during a supply shortage. Where is this excess oil coming from (for the answer, see below).
The shift has not only capped benchmark oil prices, but also helped to trigger a collapse in the premia that traders pay above them to secure physical crude. The immediate outcome has been a very beneficial one: physical barrels that in early April went for $30 above benchmark prices are now changing hands at premiums as low as $1. Talk of discounts has even started to emerge.
Underscoring this point, North Sea oil traders don’t appear as desperate for crude for immediate delivery anymore, compared to the panic buying of late March and early April
While the collapse in refining margins is a clear clue to the plunging oil imports, other questions remain: chief among them how is China importing far less crude than before without running down stocks? In the past, the country clearly bought more oil than it needed, building a huge emergency stockpile. Today, China has nearly 1.4 billion barrels in its reserves according to media reports, well above the 400 million of the US and Japan’s 260 million. As we reported in late 2025, China probably bought one million barrels a day more than it needed last year. By simply stopping beefing up the reserve, China can cut imports a lot without affecting its underlying oil needs.
The shift can explain, perhaps, a third of the import cut. But the rest? Here’s where oil traders speculate with different theories. One argument says that Chinese economic activity is weaker than previously thought, and thus oil consumption growth is also lower. What’s the catalyst for that slowdown? Perhaps the impact of the war on several of China’s clients in the region, including the Philippines, Vietnam and Thailand (just don't look for validation in Chinese economic "data" - like everything else, it took is centrally planned and Beijing would never confirm its economy is being hit due to the Iran war as that would mean reduced political leverage).
Separately, the increase of electric vehicles, improved public transportation and the option of working from home have made Chinese households better able to cope with higher oil prices.
Unlike most other nations in the region, China hasn’t announced any emergency action to rein in demand, like adopting a four-day work week for government employees or promoting carpooling.
The IEA estimates that Chinese oil demand slipped into a modest year-on-year contraction in both March and April, down by about 110,000 barrels a day to about 17 million barrels. While the drop is impressive when compared with the exuberant growth of the country’s consumption in the past, it isn’t nearly enough to explain why imports have fallen so much.
It is certainly possible that Chinese oil demand has been contracting far more sharply than currently thought, The key, Blas reckons, is the inscrutable petrochemical industry - the sector that has contributed the majority of oil consumption growth over the last five years. In petrochemicals, China is unique. On top of its traditional industry that uses oil and natural gas as feedstock, it has parallel production that relies on coal.
Since the war started in late February, coal-to-chemicals profit margins have improved markedly. The industry had typically operated with plentiful spare capacity, so there’s room for a significant shift to coal from oil as a chemical feedstock. Hard data is scarce but, anecdotally, petrochemicals plants transforming coal into plastics like polyethylene, polypropylene and polyvinyl chloride have been running hard for the last 60 days, in turn reducing consumption of traditional feedstocks such as ethane and naphtha.
So perhaps China has managed to rely far more on coal-to-chemicals than previously thought. Another possible explanation is that it’s running down hard-to-track inventories of semi-finished plastics and other chemicals, making the recent drop in oil consumption in the petrochemical industry an unsustainable one-off unless there is a global recession which collapses end-demand for Chinese plastics exports.
And then there are the more banal explanations. Although oil traders try to estimate Chinese inventory data with the use of satellite data, it is in fact possible that observers are missing locations and stocks are, in fact, falling. About two months ago, we hinted that Chinese drain of its SPR could more than offset a full Hormuz blockade for a long time. As we said on March 18, "China can avoid any Gulf imports for months and drain its SPR instead."
One relevant question: what is China's pace of SPR drain if any. Recall for the past year Beijing was adding about 500-700K in daily SPR stockpiles; total is said to be ~1.4 billion barrels. China can avoid any Gulf imports for months and drain its SPR instead.
— zerohedge (@zerohedge) March 18, 2026Sure enough, Blas writes that the oil market has been full of chatter about China quietly tapping its strategic reserves, starting by using underground caverns that no one can see using satellites. Maybe. Time lags may also be playing a role; Chinese domestic oil production has been increasing, too, perhaps helping to plug any gaps.
But, as Blas concludes, "make no mistake, China is rebalancing the oil market today." The bigger question is for tomorrow when the Strait is (eventually) unblocked: If China can reduce imports so drastically without having to take extreme measures, what does that say about the future of oil consumption there? Nothing positive for oil bulls, that's for sure.
Tyler Durden Sun, 05/10/2026 - 15:55Authored by Lance Roberts via RealInvestmentAdvice.com,
💰 Earnings Estimate Revisions Are Very OptimisticLast week, we discussed the S&P earnings record and why such record earnings could be a warning for the market. I want to continue that discussion by focusing not only on what has happened but also on what is expected to happen in the future. While the Q1 2026 earnings results are spectacular, so far, the earnings estimate revisions behind them are the real story.
The first-quarter 2026 earnings season is delivering results that Wall Street rarely sees. With roughly two-thirds of the S&P 500 having reported, the blended growth rate has climbed to 27.1% year-over-year, more than double the 13.2% that consensus modeled at the end of the quarter on March 31. If that figure holds, it will be the strongest year-over-year print since the post-COVID rebound quarter of Q4 2021. 84% of companies have beaten EPS, 81% have beaten revenue, and the average earnings surprise sits at 20.7%, nearly three times the 5-year average of 7.3%.
That’s the surface story. The more interesting question, and the one investors should be asking, is why analysts were so wrong heading in, and what it means that they’re now revising earnings estimates higher with a velocity that has almost no historical parallel.
Look at Morgan Stanley’s chart of consensus 2026 earnings estimate revisions versus history. In any normal year, by the time Q1 earnings season rolls around, analysts have been quietly walking earnings estimates down for six months. The historical median revision pattern drifts from 1.00 in January to roughly 0.92 by year-end. Two years of cuts. That’s the analyst playbook. Start the year too optimistic, get reset by reality, and end the year right.
This year is doing the opposite. The 2026 earnings estimate index cratered to 0.96 last summer during the Iran shock, then turned vertical. By May, it’s broken above 1.06. We’re looking at a roughly 14-point swing in earnings estimates relative to the historical pattern. That is what Morgan Stanley calls “fairly unprecedented,” and that’s analyst-speak for something they don’t have a clean comparison for.
The Mag 7 alone moved from a 22.4% expected growth rate at the end of March to a 61% blended print today. Four of the top five contributors to S&P 500 earnings growth this quarter are Alphabet, NVIDIA, Amazon, and Meta. The same four names driving index returns are now driving the earnings estimate revisions. That’s not a coincidence, and there is more to this story as noted by Sage Road Research:
“The AI distortion goes beyond stock prices to profits. Total S&P 500 earnings are on track to rocket 27% higher in the first quarter, FactSet estimates. But profits for the Mag-7 alone will be up 61%; for the other 493, just 16%, a figure itself inflated by semiconductor companies like Micron. This is skewing the division of the economic pie between capital and labor. As profits gallop ahead, labor compensation (wages and benefits) grew just 3.1% annualized in the first quarter, and actually shrank 0.5% after inflation, the Labor Department reported Thursday. Labor’s share of total business-sector output fell to 54.1%, the lowest since records began in 1947.” – @TrevorNoren
So, if it isn’t consumers’ and subsequently economic growth, driving earnings estimate revisions, then what is?
What’s Actually Driving the UpsideThree things are happening at once, and we have to separate them.
First, the AI capex cycle is finally showing up in the income statement. Hyperscalers have spent the better part of two years building out compute. The revenue is now landing. Communication Services is reporting +53% earnings growth, Tech is at +50%, and Consumer Discretionary is at +39%. Those aren’t soft beats. They’re the result of capex that was already locked in before the quarter started.
Second, margins are at a record. The blended Q1 net profit margin came in at 14.7%, the highest reading in over 15 years. That’s the real engine behind the surprise factor. Revenues grew 11.1%, which is solid but not extraordinary. The gap between 11% revenue growth and 27% earnings growth is operating leverage. A company that cut 8% of its workforce in 2023 and held headcount flat through 2025 is now monetizing every dollar of incremental revenue at a much higher incremental margin.
Third, breadth in Q1 results is finally improving. The Deutsche Bank charts make this point clearly. Earnings growth for the median S&P 500 company is now in the double digits, the highest reading in four years. All eleven sectors are tracking positive growth for the first time since 2022. Margins for “the rest” of the index, the 493 names outside the Mag 7, are turning higher after a steady three-year decline. Operating cash flow for non-financial corporates is running near 20% year-over-year. Q1 results are genuinely broader than they have been in years, and that deserves credit. But there’s an important asterisk on this point that I’ll address in the next section.
The Asterisk on “Broadening”Now we have to separate two things that get confused in the headlines. Q1 reported earnings broadened, but the forward-year earnings estimate revisions did not. Those are different statements about different time horizons, and the difference matters.
Goldman Sachs published a chart in early May that quantifies the gap. The bank tracks a basket of AI infrastructure stocks (S&P 500 constituents in their AI Semiconductors, AI Data Centers, and Power Up America baskets) and compares it to the broader index on cumulative 2026 EPS revisions since December 2024. The numbers are striking.
AI infrastructure stocks have seen 2026 earnings estimates revised higher by 55% since December 2024. The full S&P 500 is up 7%. The S&P 500 ex-AI infrastructure is down 1%. Read that last figure twice. Strip out chip designers, hyperscaler infrastructure, AI data centers, and the power and grid names that feed them, and the remaining 470-odd companies in the index have collectively had their 2026 earnings estimates revised lower over the past 17 months. Not flat. Lower.
This is the cleanest picture of concentration risk you’ll see this cycle. The narrow-market critique, which has been valid for 2 years, isn’t going away, even after Q1 results came in. It’s hiding inside the index math. Mega-cap AI names have absolute earnings dollars so dominant that even modest forward growth in their numbers swamps the rest of the 500. When analysts publish their 2026 earnings estimate consensus forecast for the index, they’re effectively publishing a forecast for roughly 30 companies. The other 470 are a rounding error to the headline.
“Strip AI infrastructure out of the index, and 2026 estimates are actually lower than they were 17 months ago.”
The implication for portfolio construction is direct. If you own a market-cap-weighted S&P 500 index fund, you don’t own the diversified earnings stream the marketing material implies. You own a concentrated AI infrastructure bet wrapped in a passive vehicle. The two largest holdings in the SPY are Nvidia and Microsoft. Apple, Amazon, Meta, Alphabet, and Broadcom round out the top eight. Seven of the top eight names are direct AI infrastructure plays. That’s not diversification. That’s a thematic fund with 490 other names attached for legal reasons.
None of this is bearish on AI itself. The capex cycle is real, the earnings growth is landing, and the demand picture remains durable. The point is more subtle. The index’s strength masks the weakness of its components. If AI infrastructure names hit a single quarter of disappointment, whether from capex digestion, an export control surprise, or simple revenue deceleration, there’s no second engine in the index to absorb the impact. Equal-weighted measures of breadth being healthy on Q1 results don’t fix the forward-revision concentration problem. They are two different problems.
Here is What Nobody Wants to Talk AboutHere’s where I have to put the brakes on. When earnings estimates are revised this hard, this fast, you have to ask whether the market is pricing the beat or the trend. Because historically, vertical earnings estimate revisions are a late-cycle phenomenon, not an early one.
Notice the long-term S&P 500 earnings growth estimate chart. The current reading sits near 19%, the highest print since 2000. The chart’s prior peaks tell a story. The “New Economy” peak in 2000. The “Tax Cuts” peak in 2018. The “COVID” rebound peak in 2021. Every one of those readings was followed by a meaningful drawdown in equities and a sharp downward revision cycle in earnings within twelve to twenty-four months. Forecasts above the long-term trend channel have a poor history.
“When everybody is revising higher, the marginal trade is no longer to buy the beats. It’s to fade the next miss.”
The other tell is the divergence between hard data and earnings. ISM Manufacturing is sitting in the low 50s, barely above the contraction line. The S&P 500 is up roughly 19% year over year. That gap historically closes one of two ways. Either ISM rallies into the high 50s as the cycle accelerates, or earnings get marked down to meet the macro. The latter has happened more often than the former at this point in a cycle.
This Summer is Where Headwinds RiseThere’s a calendar problem stacking up behind these numbers. The Q1 print benefited from easy year-over-year comparisons. Q2 won’t have that tailwind. By the time July prints arrive, the comparison base resets to 2025’s stronger second-quarter results, which means the same level of underlying earnings translates into a much smaller growth rate. That mechanical effect alone could pull the headline growth rate from 27% back into the low double digits, even if absolute earnings keep climbing. Markets don’t always distinguish between “growth slowing” and “earnings missing.” They tend to react to the headline number first and sort it out later.
Then there’s the bond market setup. The 10-year is still trading near 4.4%, the front end is pricing barely two cuts for the rest of the year, and core inflation has been sticky in the high 2s for six months. If the AI capex cycle keeps running hot, that’s incremental demand for chips, electricity, and skilled labor, all of which feed into the inputs the Fed watches. The risk isn’t a recession scare. It’s a “no cuts, maybe a hike” repricing that historically chops 5% to 8% off equity valuations in short order.
Positioning is the other variable. Sentiment surveys are stretched. Equity allocations among retail and institutional investors are at multi-year highs. CTAs are max long. When everyone is on the same side of a trade, and the data starts to disappoint, price discovery is brutal because there are no marginal buyers left to absorb the unwind.
Institutions Are On Risk WatchThe most useful way to gauge the risk landscape is to look at what institutional trading desks are actually doing, not just what they’re saying. The substance of the conversations across the buy-side and the dealer community is converging on a single posture: stay long, but explicitly hedge. The same desks publishing constructive twelve-month equity targets are simultaneously paying for downside protection in size. That’s the tell.
Five points are worth laying out.
First, positioning. The Nasdaq 100 just delivered its biggest monthly gain in over 23 years. A move of that magnitude has consequences for who is left to buy. Systematic strategies (CTAs, vol-target funds, risk parity) have completed their re-risking. The buy-the-dip retail bid has been engaged since the March lows. Discretionary trading desks are now running long exposure at around +6 on a -10 to +10 scale, up from -4 at the March lows. The marginal buyer in this tape has already shown up. From here, the question is who steps in if the data disappoints.
Second, the fundamental catalyst stack is largely behind us. The fiscal pulse that supported corporate margins is fading. The Q1 EPS print of 27% will not repeat against tougher comparisons. The operating leverage that drove the surprise factor cannot keep expanding indefinitely. The combination means the next four quarters of earnings reports face a higher bar with less wind at their backs.
Third, the Strait of Hormuz is still live. The tape has effectively forgotten last summer’s oil shock. That’s how markets work. We discount tail risk after the immediate catalyst passes, but the underlying geopolitical setup has not materially improved. A single headline can reprice oil 4% in a session, and equities are positioned for a benign energy backdrop that may not hold.
Fourth, the Fed is constrained. Last week’s hawkish hold told us where the committee sits when core inflation prints closer to 3% than 2%. The base case for cuts in September and December assumes labor market softening that has not yet arrived. If those cuts get pushed, the equity multiple has to absorb the disappointment, and historically that costs the index 5% to 8% in short order.
Fifth, narrow breadth is a real risk that history takes seriously. Most standard measures of S&P breadth are exceptionally thin right now. Nine of eleven sectors are positive on the year, which sounds healthy on the surface, but participation under the index headline is concentrated in a handful of mega-cap names. The strongest historical conclusion isn’t that narrow breadth is bearish (because, for two years, it hasn’t been), but that it raises the probability of a momentum rollover when the rotation eventually breaks. You don’t pick that fight. You do prepare for it.
Here’s the practical math that ties this back to portfolio action. One-month at-the-money puts on the S&P 500 are currently priced at less than 2% of the spot price. For investors carrying meaningful long exposure into a summer with the stack of risks described above, that’s compelling risk transfer. The same institutional desks publishing constructive twelve-month equity views are paying for that protection right now. They call it “the cost of a good night’s sleep.” That phrase belongs in every portfolio review this quarter.
🔑 Key Catalysts Next WeekAfter two weeks of Magnificent 7 earnings and payrolls data, the calendar pivots back to the macro gauntlet that will define the Fed’s June path. Tuesday’s April CPI, Wednesday’s April PPI, and Thursday’s April Retail Sales create a three-day inflation-consumer trifecta that will either confirm or break the “higher for longer” trade heading into the June 16 FOMC meeting. This week isn’t about individual stocks; it’s about the price level and the consumer’s willingness to pay it.
Tuesday’s April CPI is the week’s anchor. March ran hot with the headline at +0.4% MoM and the core reading rising +0.3%. That reflected the first full month of the Iranian oil shock and the broadened tariff regime. April is the second month of that regime, and the question is whether the acceleration was a one-month spike or the beginning of a new trend. Energy prices eased modestly in late April as Iran ceasefire talks gained traction, potentially providing a one-month offset. But core goods, where tariff passthrough lives, won’t have that benefit. Used car prices, which had been masking tariff pressure in prior months, are no longer declining. Shelter costs remain stubbornly elevated. If the headline comes in above +0.3% MoM or core reaccelerates, summer rate-cut expectations are dead.
Wednesday’s PPI doubles down. Producer prices feed directly into the PCE calculation that the Fed actually targets. March PPI printed a blistering +0.7%, the hottest monthly reading in over a year. April PPI tells us whether the upstream pipeline is still pressurized or whether oil’s modest pullback and easing supply chains provided relief. A PPI-to-CPI passthrough story is forming: if producers are absorbing cost increases now, margins will compress, and earnings will be revised down. If they’re passing them through, consumer inflation stays elevated, and the Fed stays on hold. Either outcome is negative for someone.
On the earnings side, this is the bridge week between Big Tech and the Nvidia event on May 20th. Cisco, on Wednesday after the close, is the enterprise IT capex bellwether. AI-driven switching demand, progress on Splunk integration, and the order backlog will tell us whether corporate technology spending is holding up or pulling back amid macro uncertainty. Alibaba Wednesday morning is the China read on cloud and AI revenue from the Qwen model, quick commerce investment, and tariff/trade war impact on cross-border commerce. Applied Materials on Thursday after the close is the semiconductor capital equipment signal ahead of Nvidia, its $5 billion EPIC platform bet, and wafer fab equipment orders are the leading indicator for chip manufacturing capacity expansion.
CPI will tell us where inflation is, while PPI tells us where it’s going. Retail Sales on Thursday will tell us whether the consumer breaks before the Fed blinks. Three data points, three days, one narrative. If all three run hot, the “higher for longer” trade hardens into “higher for the foreseeable future,” and risk assets may begin to reprice. This is why we continue to suggest maintaining portfolio management practices carefully.
What Should Investors Do NowQ1 was a genuinely strong quarter. Margins are real. Cash flow is real. The broadening is real. None of that is in dispute. What’s worth disputing is the assumption baked into consensus. An 18.6% full-year forecast assumes the run rate from Q1 just delivered continues for three more quarters, with no margin compression, no demand weakness, and no AI capex digestion. That’s a stack of optimistic assumptions, and the historical record on stacks like that is unkind.
For investors, the playbook into summer is unchanged in direction but tighter in execution. Trim into strength rather than chase. Reduce concentration in the names that have done the most work, especially where position sizes have crept up from price appreciation rather than active accumulation. Add hedges, not insurance you’ll never use, but actual collars or put spreads on the largest exposures. Keep dry powder for the first material disappointment, because it always comes, and the names worth owning rarely go on sale during euphoria.
The setup that worries me isn’t that earnings are bad. It’s that they’re so good the bar has been raised to a level that historically marks a peak, not a launching pad. When everybody is revising higher, the marginal trade is no longer to buy the beats. It’s to fade the next miss. That moment usually arrives without warning, and the pattern has held in every prior cycle that produced a chart like the one in front of us today.
Stay long, but stay hedged. The asymmetry has shifted.
Tyler Durden Sun, 05/10/2026 - 15:45