The Weekend Reckoning: Markets in Denial

Sunday evening, with futures painting green and reality lurking

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The S&P kissed another record last week. The S&P 500 rallied to a new record on Wednesday after the U.S. reached a trade agreement with Japan. Ten records for the Nasdaq this year already. The machines keep buying. The algos keep humming. The VIX stays dead.

And yet.

Walk through any trading floor worth its salt and you'll hear the whispers. Something's off. The euphoria feels forced, mechanical. Like watching a Broadway show where half the cast has food poisoning but the curtain must rise anyway.

President Trump is even suggesting the possibility of firing Fed Chair Jerome Powell, whose leadership term ends next May. There it is again – the political circus bleeding into monetary policy. Powell's walking a tightrope over a pit of presidential tweets, trying to thread the needle between economic pragmatism and political survival.

The irony cuts deep. Here we are, celebrating record highs while the very architect of our monetary foundation gets threatened with termination. It's like cheering for a skyscraper while someone argues about firing the guy who poured the concrete.

S&P 500 companies delivered a notably strong Q1 2025 earnings season, with blended earnings per share (EPS) growth reaching 13.4%, nearly double initial expectations. Approximately 78% of companies beat Wall Street estimates. Beautiful numbers. Perfect, pristine, almost too good to be true. When 78% of companies beat estimates, either we've entered a golden age of corporate execution or our estimates have become systematically sandbagged theater.

I vote theater.

Because buried beneath the celebratory headlines, the structural tensions keep building. The benchmark interest rate in the United States stands at 4.50% – a rate that would have triggered panic selling five years ago but now gets shrugged off like yesterday's weather report. We've normalized the abnormal. We've forgotten what real price discovery looks like.

The Japan trade deal? A sugar rush masquerading as meaningful progress. Markets popped because they needed an excuse to pop, not because bilateral trade agreements fundamentally alter the trajectory of overleveraged corporations operating in an increasingly fragmented global economy.

Meanwhile, the earnings calendar marches on relentlessly. Tesla, Google, IBM – the usual suspects parading their quarterly theater before analysts who've already decided what they want to hear. The ritual of guidance raises and lowered bars continues, a choreographed dance where everyone knows their steps.

But step back. Zoom out. Look at the bigger picture developing in the shadows while everyone stares at the green numbers.

We're living through the most artificial market environment in modern history. Central bank balance sheets that would make banana republics blush. Corporate debt levels that would trigger congressional hearings if they belonged to governments. Valuations that assume perfection in perpetuity.

And the response to this precarious house of cards? More records. More celebration. More denial.

The disconnect between market euphoria and underlying fundamentals hasn't been this stark since the dot-com bubble. But this time feels different. More insidious. Because instead of obvious speculation in obvious garbage, we have sophisticated speculation in sophisticated garbage, dressed up with ESG ratings and AI narratives and sustainability frameworks.

The machines will keep buying until they don't. The algorithms will keep pumping until someone flips the switch. The records will keep falling until the music stops.

And when it does – when the last greater fool realizes there's no one left to sell to – we'll look back at moments like these and wonder how we convinced ourselves that political threats against Fed chairs and trade deals with single countries could justify valuations that assume we've solved the business cycle forever.

But for now, the party continues. The champagne flows. The records keep coming.

Just don't mistake the music for the fundamentals.

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Sleep tight.