In 30 seconds: Market breadth data shows improving new highs in US equities while research highlights that a tiny fraction of stocks drive long-run wealth creation, reinforcing the case for passive index investing amid expanding global money supply. Iranian threats in the Strait of Hormuz have severely curtailed shipping volumes, while US crude prices, jet fuel costs, and strategic reserve drawdowns reflect mounting supply disruption across global oil markets. Netflix reported record Q1 revenues of $12.3 billion and net income of $5.3 billion, with operating margins expanding to 32.3% year-over-year. Kevin Warsh is set to tell the Senate at his confirmation hearing that Fed independence is the Fed's own responsibility, while observers note tension between his stated views and those of the administration that nominated him.
Breadth is firming up. On Friday, 49 S&P 500 stocks printed new 52-week highs, roughly 10% of the index, while zero made new lows. Net new highs picked up quite a bit, with Tech and Consumer Discretionary driving the move late last week. That is the kind of internal improvement you want to see if you believe the rally has legs beyond the usual handful of mega-caps. The top 10 stocks account for a disproportionate share of all US stock wealth creation. Meanwhile 59% of all US stocks have underperformed Treasury bills over their lifetimes, and 45% ended with a negative cumulative return. The math is brutal for stock pickers. Jack Bogle put it simply: "Don't look for the needle in the haystack. Just buy the haystack." The backdrop is not exactly hostile to risk assets. Global money supply has been expanding at an annualized rate of 16% since the start of this year. Even single names are catching a bid: Cava ($CAVA) share price traded near the low $40s last November and has since rallied 120%. If you are tempted to rotate into bonds for safety, the historical record is not encouraging. Bonds have been the worst-performing asset class following the last 10 major financial and geopolitical events (including COVID). The FT notes they have also been a poor hedge during the war. So the asset class you reach for when things get scary has, in practice, been the one that disappoints most reliably when things actually get scary. Buy the haystack. Hold equities. Try not to pick.
The global oil supply system, as Michael Green once marveled, successfully supplies 7.5 billion people every day. Eurasia Group describes a significant risk of Iranian attack on any vessel attempting passage through the Strait of Hormuz. Iraq's overland route via Syria moves roughly 150,000-160,000 barrels per day, compared to pre-war Gulf exports of 3,600,000 barrels per day. You are replacing a fire hose with a garden sprinkler. The SPR draw is a meaningful effective supply addition to the market, but not enough. Singapore jet fuel prices have doubled from $82 to $166 per barrel since January, and some US Lower 48 crude grades are trading at prices Plains All American Pipeline calls "just incredible." US Lower 48 crude oil grades (physical, wellhead): $70-$80.
There is a version of the streaming wars where everybody bleeds cash forever, content budgets spiral into oblivion, and the whole sector becomes a cautionary tale about subsidizing consumer entertainment with shareholder capital. Netflix appears to have wandered into a different version. The company posted $12.3 billion in Q1 revenue, a record for quarterly revenues, up 16% year over year. That is a nice number. The nicer number is $5.3 billion in Q1 net income, also a record for quarterly net income, up 83% year over year. Revenue grew 16%. Profit grew 83%. If you are looking for operating leverage, that is operating leverage. The basic thesis here is straightforward. Netflix revenues: $12.3 billion. The question you might reasonably ask is whether 83% net income growth is sustainable or whether this is the quarter where the math looked its absolute best. Revenue can only grow 16% for so long before you run into the problem of there being a finite number of humans with internet connections and credit cards. But for now, the machine is working.
This is a nice thing to say at a confirmation hearing. It is also, if you think about it for more than a few seconds, a carefully constructed sentence that places the burden of institutional credibility on the institution itself rather than on, say, the president who nominated you. The implication is that if the Fed acts with sufficient discipline, outside pressure becomes irrelevant. Whether that holds up in practice is a different question. He will also tell senators that inflation is the Fed's responsibility without excuse or equivocation. Again: a fine sentence. The word "equivocation" is doing a lot of work there, because the interesting scenario is not one where the Fed chair equivocates about inflation but one where the administration that appointed him has strong preferences about interest rates and the chair has to decide whose phone call to return. Warsh served at the Fed as a governor from 2006-11, which means he has direct experience inside the institution. He was involved in early planning and scope work for the renovation of the Martin building, which was completed in 2021. The Fed's building renovation projects are so long running that a nominee can participate in the planning phase and be long gone before the ribbon cutting. There is probably a metaphor in there about monetary policy lags. Demand-side pressures from the AI buildout, a higher neutral rate if there's a productivity boom, and different starting conditions from Greenspan's 1996 patience all complicate the picture. Back in 1996, Greenspan's starting conditions were friendlier: inflation at target, deficits falling, and globalization as a benign tailwind. So you have a nominee pledging independence and anti-inflation resolve, walking into an environment that will test both almost immediately.
Here is what your weekly spend looks like right now.
Gas (per gallon): $4.12, up 0.07% on the week
Groceries (CPI food at home): 343.51, up 0.01% on the month
Eating out (CPI food away from home): 346.60, down 0.01% on the month