Are Markets in Denial?

The market seems ready to believe a comforting little story: maybe the worst has passed. Indices bounced back yesterday and Futures on Wall Street are in the green this morning. Yet oil is still hovering around $100 a barrel, the Strait of Hormuz remains effectively constrained, and the Middle East conflict is widening. The global economy is still confronting the sort of shock that central bankers, investors, and regular households have learned to fear for a simple reason: it spreads.

Goldman Sachs has called this the biggest oil supply shock on record. Moody's has warned that if conditions do not improve within weeks, a recession could become unavoidable. That may sound alarmist, but history is not exactly soothing here: nearly every U.S. recession since World War II, apart from the brief pandemic collapse, was preceded by an oil-price spike. Growth in the final quarter of 2025 came in at just 0.7%. The labor market has softened. Other indicators have been rolling over too. This is not an economy with a lot of extra padding.

And yet markets still keep reaching for optimism. A few ships make it through Hormuz, and suddenly people start acting as though the crisis has been downgraded from "serious" to "manageable." But the basic facts have not changed. Iran still appears capable of shaping who moves safely through the strait and who does not. Attacks on energy infrastructure continue, including the latest strike in the UAE. U.S. allies have largely refused President Donald Trump's call to help secure the passage. British Airways has extended its suspension of flights to several Middle East destinations through at least late April and, in some cases, through the end of May.

The mood in markets, by contrast, still swings with extraordinary eagerness between dread and denial. On Monday, stocks rebounded, led by technology. That, too, tells us something. Big tech is not immune to high energy costs, but it is better positioned to absorb them than most of the economy. A company with giant margins can treat rising electricity bills as an irritation. A manufacturer with much thinner margins cannot. In that sense, the rebound in tech was less a sign of broad confidence than a reminder of how uneven modern capitalism has become.

Nvidia, in particular, once again played its familiar role as the market's emotional support semiconductor. At its developer conference, the company said the revenue opportunity for its AI chips could reach at least $1 trillion through 2027, and the announcement helped rekindle the idea that America can code its way out of any problem. Uber jumped on robotaxi plans powered by Nvidia software, while chip-adjacent names got a lift. The AI trade, as usual, offered investors a way to talk about the future rather than the mess right in front of them.

Meanwhile, the Federal Reserve begins its two-day policy meeting and is back in its least favorite role: the institution expected to solve problems it did not create and cannot fully control. For the fifth straight year, officials thought inflation might finally glide back toward 2%, only to be hit by another disruption. First came the aftershocks of the pandemic, then Russia's invasion of Ukraine, then tariffs, and now this. The Fed is widely expected to leave rates unchanged this week, but that is almost beside the point. The real question is how hawkish it now has to sound in order to keep inflation expectations anchored, even as growth weakens.

That is the trap, since higher oil prices make inflation worse. Slower growth makes rate cuts more tempting, but cutting too soon risks fueling inflation all over again. Holding tight risks choking an already fragile economy. Australia's central bank just raised rates again while openly worrying about imported inflation and the economic consequences of the conflict.

The market does not seem fully prepared for that bind. Analysts have already noted that investors may still be underestimating the broader economic effects of this war. Treasury yields have moved up as traders scale back expectations for Fed cuts. Rate futures now imply just one quarter-point cut near the end of the year, down from around two before the conflict escalated.

The U.S.-China summit expected this month may now be delayed because of the war. Analysts do not think that will necessarily derail the broader thaw in relations, but it is another sign of how one conflict can reorder other priorities. Israel's ground invasion of Lebanon, meanwhile, opens a new front against Hezbollah and further widens the confrontation with Iran.

I have been rather pessimistic in this column thus far and, to be fair, there remains a strong case for restraint. Some analysts argue that without major destruction of core oil infrastructure, the current surge may prove temporary. Emergency stockpile releases can soften price spikes, and some ships are still getting through. Demand destruction from higher prices could eventually cool the market. It is possible that the energy shock will ease before it becomes a full-scale economic event. But the larger problem is that America has developed a habit of treating repeated shocks as though they were isolated episodes, but at some point, these are not interruptions to the system: they are the system.

Today's economic highlights:

Today's agenda includes: the RBA interest rate decision followed by the press conference in Australia; the ZEW Economic Sentiment Index in Germany and the Euro Area; in China, the FDI (YTD) YoY; in the United States, preliminary building permits, housing starts, pending home sales, and the API crude oil stock change. See the full calendar here.

• Dollar index: 99.758
• Gold: $5,013
• Crude Oil (BRENT): $102.8 (WTI) $95.29
• United States 10 years: 4.22%
• BITCOIN: $73,881

In corporate news:

• Amazon launched 1-hour and 3-hour delivery in more U.S. cities to defend its e-commerce position against Walmart.
• Kraft Heinz is rolling out healthier products, including a high-protein Kraft Mac & Cheese, to support weaker brands.
• Honeywell said the Middle East conflict could dent first-quarter revenue, but it kept its full-year 2026 outlook unchanged.
• JPMorgan Chase hired former Goldman Sachs banker Yi Zhang as co-head of China investment banking to strengthen its Asia business.
• Nebius Group announced a collaboration with Nvidia to speed up development of physical AI.
• Nvidia raised its AI chip opportunity forecast to at least $1 trillion through 2027 as it shifts focus toward inference computing.
• Intel launched its new Core Ultra 200Hx Plus series of mobile processors.
• Fractal Analytics introduced LLM Studio using Nvidia NeMo and NIM microservices to support customizable generative AI.
• Infineon expanded its collaboration with Nvidia to develop physical AI and humanoid robotics systems.
• Google is in talks with Envicool and other Chinese suppliers to buy liquid-cooling systems for AI data centres.
• Alibaba created a new business group to consolidate its AI operations under CEO Eddie Wu.
• Amazon, Microsoft and Google were identified among the biggest investors in German data infrastructure as Germany pushes to expand AI data-centre capacity by 2030.

Analyst Recommendations:

• Align Technology, Inc.: Barclays upgrades to overweight from market weight with a target price of USD 200.
• Dover Corporation: Wells Fargo upgrades to overweight from equalweight and raises the target price from USD 210 to USD 230.
• Eli Lilly And Company: HSBC downgrades to reduce from hold and reduces the target price from USD 1070 to USD 850.
• W. P. Carey Inc.: Raymond James upgrades to outperform from market perform with a target price of USD 76.
• Accenture Plc: Jefferies maintains its hold recommendation and reduces the target price from USD 280 to USD 215.
• Adobe Inc.: KGI Securities Co Ltd maintains its neutral recommendation and reduces the target price from USD 440 to USD 290.
• Atlassian Corporation: Wells Fargo maintains its overweight recommendation and reduces the target price from USD 155 to USD 120.
• Circle Internet Group, Inc.: Baird maintains its outperform rating and raises the target price from USD 110 to USD 138.
• Coinbase Global, Inc.: Baird maintains its neutral recommendation and raises the target price from USD 165 to USD 215.
• Lyft, Inc.: Arete Research maintains its neutral recommendation and reduces the target price from USD 20 to USD 15.
• National Storage Affiliates Trust: Mizuho Securities maintains its neutral recommendation and raises the target price from USD 32 to USD 41.
• Onemain Holdings, Inc.: Evercore ISI maintains its in-line recommendation and reduces the target price from USD 69 to USD 55.
• Salesforce, Inc.: KGI Securities Co Ltd maintains its outperform rating and reduces the target price from USD 330 to USD 245.
• Venture Global, Inc.: Scotiabank maintains its sector perform recommendation and raises the target price from USD 9 to USD 11.