In an interview with CNBC, US Treasury Secretary Scott Bessent said the US and Iran could reach an agreement to open the Strait of Hormuz to “freedom of movement” as soon as “today or tomorrow.” Following his remarks—alongside reports of ongoing regional mediation via Qatar and Oman—crude oil prices dropped significantly. Brent crude fell below $80/barrel. The US Treasury yield curve edged lower across the board. US equity markets rallied sharply on hopes of a diplomatic breakthrough.
Sunday’s QT was titled “Information Technology Is On Sale.” The S&P 500 Information Technology sector rose 6.6% over the past two days. It is up 12.2% since last Wednesday’s close. The summer stall in the S&P 500 ended decisively today as the S&P 500 broke out to a new record high of 7,736.52.
Bessent also said he’s tired of hearing about the “K-shaped economy” and argued that it is over. We agree. In fact, given the broadening strength across the economy, we’d say it is an “OK economy.”
The economy is doing very well, and earnings are reflecting that. S&P 500 forward earnings is up more than 30% y/y, while the ISM M-PMI climbed to a four-year high in July (chart). Historically, stronger manufacturing activity has been associated with stronger earnings growth.
The stock market is doing well because of FEMO, Fabulous Earnings Momentum. Stocks have generally performed best when the ISM Manufacturing PMI is above 50.0. The correlation isn’t perfect, but expansion in manufacturing has usually provided a tailwind for equities (chart).
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