Markets vs Drama | How Oil, Earnings & Geopolitics Shape Wall Street | Kenny Polcari

Well, good morning. Yes, it's me, Kenny Polcari, coming to you live from Grand Central Station in New York City. And today is May 28th, 2026. And here are the things that you need to know to get your day started. Well, the push continues even as the headlines remained a bit conflicted. The Strait is still closed as Iran attempts to attack the US. Eh, says not so fast. Oil down yesterday, but it's higher this morning. Bonds are steady and gold is a little bit weaker. The PCE out at 8:30. And what do we have for dinner tonight? We're gonna have the sausage with peppers and onions. It's a great summer dish. All right, so just one quick thing. I am joining the Big Money Show on Fox Business today from 1 to 2. Please join us. All right. And just like that, the market did it again, right? Another record close for the Dow, another record for the S&P, another record for the NASDAQ, all while we've got all this drama happening all around us. On the surface, you'd think that it was all good, but really underneath the— underneath, it was a little bit chaotic, right? The market continues to trade headline to headline, rumor rumor to rumor, and yes, missile to missile. And yesterday we got all of it, all in one day. The headlines, the rumors, and yes, the missiles and the drones in a single session. Stocks started out strong, they got whacked, they stood up again, they got whacked again, and then they ended the day higher as the closing bell rang, as investors, traders, and algos digested the action on the other side of the world. At the end of the day yesterday, here's what it looked like. The Dow, well, it added 182 points. The S&P eked out a small gain of 1 point, although it is still a new record. The NASDAQ added 18 points. The Russell lost less than 1 point. The Transports rose by 287 points, or 1.4%. Again, the clear winner of the day, the equal-weighted S&P, was up— uh, lost 4 points, while the Mag 7 gained 332 points, or 0.9%. And here are how the 11 sectors, uh, uh, responded. Consumer Discretionary was the star performer, up 1.8%. And what's interesting about that is that the sector is now positive on the year, right? Consumer Stables, they gained 1.2%. Communications up 6/10, leaving that one though still negative on the year. Healthcare added 2/10, leaving it negative on the year, all while Basic Materials gained 4/10 of a percent. Industrials closed flat. Utilities lost 4/10. Tech gave back 4/10 of a percent. Financials lost 8/10. Energy lost 1.5% and is now down 8% in one week. As traders unwound that higher forever trade that dominated the conversation just weeks ago, while real estate gave back 2/10. Now airlines, retails, and consumer discretionary names all caught a strong bid as oil prices collapsed. Now semi, cybersecurity, and software all took a breather after their monster runs over the last month or so. And honestly, that's healthy because the market's beginning to trade the math rather than trade the drama. So here's what you have, here's what happened, and here's why you should pay attention. So let's just lay it out, right? At mid-morning, Iranian state TV dropped what sounded like a breakthrough, right? And I quote, Iran was prepared to restore full shipping through the Strait of Hormuz within 30 days as part of an unofficial framework with Washington. Oil plummeted. That's actually a positive, right? Falling nearly 5% as markets prepared to open. Futures were up, bonds rallied, yields dropped, and we were off to the races, as they say. Hey, and then the White House denied the story, calling it a complete fabrication. And then the missiles started flying because boats and drones got blown up. As you can guess what happened next. Oil reversed, bonds got sold, and algos went from buy to sell in a blink of an eye. One minute you're pricing in $75 crude and global peace, and then the next minute the US military is confirming new airstrikes in southern Iran while the IRGC claims that it fired at an F-15 with multiple drones. Both sides talking out of both ends. Yet somehow, through all of it, the Dow, S&P, and NASDAQ managed to close at another all-time high. I mean, honestly, you can't make this stuff up. Now here's what actually matters though. The market is betting on the math now rather than the drama. Follow me on this because these two equa— there are two equations for you to consider. Both are important. One is just a little bit more important than the other. The first is oil, right? Two weeks ago, WTI was trading at $105 a barrel. Yesterday, it settled at $89.40. That's a 15% decline in just two weeks, leaving oil trade back at levels that we last saw in, uh, April and early May. Now, the trader types that bought oil at $105, well, they're not happy, but the market is celebrating. Falling oil prices changes the narrative. Right. Lower oil eases inflation fears. Lower inflation fears push bond yields— bond prices higher and bond yields lower. Lower yields continue to support equities. The second is earnings. The second equation was earnings, and this is the more important one. And that brings me to my friend Ed Yardeni, one of the sharpest minds on Wall Street. And while he's not arguing against the oil trade at all, he wants investors to focus on what he now calls the FIMO trade. Yes, FIMO, not FOMO. FIMO is the Fabulous Earnings Momentum trade. FIMO's earnings, they're delivering. Companies are beating and guidance remains strong. It's the fundamentals doing the real work for the markets. So let's really, let's be clear about what's happening. In the first quarter earnings season, Wall Street walked in expecting 13% earnings growth. That was the bar to beat. What we got was 28.4% growth, more than double the original expectation, the strongest earnings growth since the fourth quarter of 2021. 84% of the S&P 500 companies beat on the estimates, the highest beat rate since the second quarter of 2021. And they didn't just clear the bar, they cleared it by 18% on average versus the historical norm of about 7%. Revenue growth came in at 9.7% versus the 6— 8.2% expected. And profit margins, they hit 14.8%, the highest level ever recorded. Not the highest in 5 years, not the highest since the pandemic, the highest in recorded history. And this all happened, all of it, while we were— while there was a war raging in the Middle East, the Strait of Hormuz was largely closed, oil had spiked, and every economist on the planet was warning about geopolitical headlines crushing margins. This is why the market's at all-time highs. This is what Ed Ardeni means when he talks about FOMO, fabulous earnings momentum. This isn't, this isn't hype. This isn't FOMO. This is the fundamental earnings story doing exactly what it is supposed to do. With analysts projecting 16% full-year earnings growth for 2026, S&P 8000 suddenly looks a lot less aggressive than it did maybe earlier in the year. And to prove that point, after the bell last night, we got more good news. Snow delivered a monster quarter, $1.3 billion in revenue, up 33% year over year, uh, product, uh, while, while product revenue surged, uh, 34%. Earnings per share beat, backlogs exploded up 38% to $9.2 billion, and existing customers continued spending more. Then came the real kicker. They raised their guidance, expanded their margins with a map, and they offered a massive $6 billion Amazon Web Services partnership and another more deeper move into agentic AI with their Natoma acquisition. The message was clear. The AI data trade could not be more alive. It's accelerating. And producing real revenue growth, period, the end. The stock is up 38% in the pre-market. Then there was Marvell, another beast. They delivered record revenue, record cash flow, strong forward guidance with management saying, um, growth should continue accelerating throughout the fiscal year 2027. NVIDIA, now that may be the heartbeat of the AI universe, but Marvell represents the arteries, the veins, the nervous system, right? We discussed this on Tuesday. I wrote all about it. Networking, optical connectivity, custom silicon, cloud infrastructure, and data center plumbing. Wednesday, Wednesday night was another reminder of the AI ecosystem trade that also remains very much intact. Marvell is down 3% in the premarket as the, as the trader types just are taking a little bit off the table after its explosive move. And Salesforce, this one was a little bit nuanced. It was a great quarter. They beat the guidance. Revenue was up 13%. Earnings per share up 50%. AgenTech, um, AgentForce, uh, ARR exploding by 205% and management announcing a massive $25 billion stock buyback, the largest in their history. But the guidance came in just a touch light, and in this market, just a touch light gets punished immediately. The stock sold off as investors continued struggling with the bigger question: does AI ultimately accelerate Salesforce growth or eventually disrupt the traditional Salesforce model that built the company. The numbers say buy, the guidance says, uh, maybe. The stock is down 2% in the pre-market. Now, this morning, oil is bouncing back. WTI up $1.50 or 1.7% at $90.19 as traders continue trying to handicap the next headline coming out of the Middle East. One, uh, one minute the market is pricing in a Hormuz reopening and $80 crude. The next minute it's pricing in renewed clashes, tighter supply, and another geopolitical shock. That's the environment that we are in at the moment. Bond yields are relatively steady. And after yesterday's rally, the 2-year is yielding 4.05%, the 10-year is yielding 4.49%, just below that key 4.5%, while the long bond is back hovering around the psychological 5% level at 5.01%. Stocks can tolerate yields here, but they do not want to see another sharp move higher. Gold. Well, gold looks confused. It's down another $57 this morning on top of yesterday's $52 decline, now trading at $4,395 and down roughly 17% from the March highs, leaving it, uh, essentially flat on the year. Technically, it's sitting right on the, on the major trendline support. If that fails to hold, you could easily see it test $4,100, where I think it would find plenty of support. The sell-off there suggests traders are unwinding parts of the geopolitical fear trade as oil stabilizes, yields remain elevated, and investors rotate back towards risk assets. Right. But make no mistake, the market is still struggling to price the competing narratives out of the Middle East, sticky inflation and higher for longer rates. And then there's today's main event, the PCE report. This is the Fed's preferred inflation gauge, and it hits at 8:30 this this morning before the market opens, before Dell and Costco report, and frankly before most people have even had their first cup of coffee. Expectations are for headline PCE to rise by half a percent month over month and up 3.8% year over year, while core PCE is expected to rise by 3/10 month over month and 3.3% year over year. Both still running hotter than the Fed would like. If this number comes in even hotter than the expectation, it could quickly reignite the inflation and higher for longer narrative, as the market was briefly trying to ignore yesterday as oil collapsed and yields eased. We also— we're also going to get durable goods this morning in the second read on first quarter GDP, which is expected to come in at +2%, along with new home sales and building permits, giving investors another look at the strength of both the consumer and the US economy. And after the bell, Dell and Costco. 2 very different companies, but both important reads on the economy. Dell, that's going to give us another look into the enterprise AI spending, data center demand, and corporate CapEx trends. Uh, while Costco, that's going to tell us whether or not the consumer remains resilient or is finally beginning to crack under the weight of higher prices and elevated borrowing costs. So take a shower, Grab the coffee and get ready because between the inflation data, oil volatility, geopolitical headlines, and another round of major earnings, today could get interesting fairly quickly. European markets this morning are mostly low and not dramatically, but just, uh, mostly lower. US futures are down. Dow futures down 43, S&P's down 12, NASDAQ's down 110, and the Russell is down 10 points. Now the S&P closed at 7,520 yesterday, up 1 point, and honestly, The market feels a little bit tired, which by the way is not a bad thing. Everyone needs to take a rest, right? Momentum remains stretched. The RSI is still flashing overbought, uh, and the index is now trading roughly 6% above trendline support. It's not a red light, it's a flashing yellow one, right? Remember, markets can stay overbought for longer than most people expect, but eventually they need to either pull back rotate or simply consolidate to digest the, the recent moves. It's healthy and it's normal. No one should get upset about that, which is why discipline matters right here. This is not the moment to get emotional. It's not a moment to chase extended names or to get FOMOized because stocks continue making new highs. Now look, if you're properly invested and based on who you are and what your risk tolerance is, then you stay disciplined and you let the process just work it out. If you're unsure whether the risk in your portfolio actually matches your goals, your timeline, and your tolerance for volatility, then feel free to give me a call. 561-931-0190. I'm always happy to give you a complimentary portfolio review over your risk assessment. Okay, so now what do we have for dinner? We're gonna have the sweet sausage with peppers and onions. It's a great summer dish. You make it on the grill, feeds a lot of people, and it's great. It's a classic and easy dish to make, and it really goes a long way if you're having a big holiday, if you're having a weekend barbecue. For this, you need the Italian sweet sausage. You can certainly use hot. I don't use hot, I use sweet. You need onions, red, green, and yellow bell peppers, garlic, salt, pepper, and of course, you need the fresh Italian rolls, right, or the submarine sandwiches, as I call them, from Massachusetts. Preheat the grill to high. Start by heating up some of the olive oil in a medium and over medium-high heat. In a large sauté pan, add in a couple of smashed garlic cloves and then sauté it. Don't burn them. Now add in the sliced onions, allow those to just soften a bit. Now add in the sliced peppers, season it with salt and pepper. Make sure that you have a pan big enough to accommodate. Season it with salt and pepper, cover it, reduce the heat to medium, and just let them sit there for a minute. Now take the sausages, put them on the grill, cook them. Don't burn them, don't let the flames burn the sausages. Roll them all over so they cook all over. Once they're browned and the sausages cook, take them off the grill, set them aside. Now you can do it two ways. Put them in a large aluminum pan. You can take all the peppers and onions and put it right over the pan, cover it with foil, put it in the oven and keep it until— keep it warm until you're ready to eat it. Or you can slice the sausages into little rounds and then put it in the aluminum pan, cover it with the peppers and onions, and cover it with aluminum foil, put it in the oven and keep it till you're ready to use it. It really depends on how you're going to use it, how you're going to eat them. Are you going to make submarine sandwiches out of them? You want to keep the sausage long, or if you're going to eat them appetizer style, then you want to slice them into little rounds and be able to eat them with a fork and fork on a little plate. In any event, it is a beautiful day here in New York City. As you can see, I'm in Grand Central. There's lots of action going on, people going to work. It feels good and it feels healthy. Until tomorrow, take good care.