Risk sentiment improved overnight on anotherAxiosreport that Iran has given the US a new proposal to reopen the Strait of Hormuz with more detailed nuclear talks expected later. Oil pares early gains, and US equity futures jumped although they have also pared gains since and are trading flat as traders await a huge week of earnings (44% of the S&P by mkt cap is set to report) and central bank decisions (Fed, BOJ, ECB, BOE and BOC all expected to keep rates on hold). As of 8:00am ET, S&P 500 futures are flat and Nasdaq 100 contracts gain 0.2% after Friday's records for both indexes even though leadership is narrow, and the S&P equal weight index closed negative on the week;premarket gains by chip stocks like Nvidia, Qualcomm, Intel and Micron suggest the semiconductor ETF (SOX) is set for a record 19th day of gains.Mag7s are mixed, semis are bid, discretionary outperforms staples, cyclicals over defensives, and AI theme is bid across multiple sectors. Looming Big Tech results (22% of S&P 500 market cap across just four companies reports after the close on Wednesday, when Alphabet, Microsoft, Amazon and Meta release their Q1 results with Apple following on Thursday) will test whether April’s rally is sustainable, with signs of caution under the surface of the gains. Bond yields are +1-2bps as the yield curve steepens; DXY is lower. Commodities are bid led by the Energy complex, with most products up at least 2%. Brent crude rose 1.1% to about $106.50 a barrel after Trump canceled a trip by top envoys to mediators in Pakistan over the weekend. Base metals are leading Precious with Ags continuing its march higher. Today’s macro data calendar is light ahead of a heavy central bank schedule where major CBs are expected to hold ahead of the market pricing changes in June. Warsh is set to be confirmed without further delays while Powell’s status remains unclear.

In premarket trading, Mag 7 stocks are mixed (Nvidia +1.6%, Alphabet +0.4%, Amazon -0.1%, Meta +0.04%, Microsoft -0.4%, Tesla -0.4%, Apple -1.8%)

In other corporate news, Musk says he’s nearing his goal of turning X into an “everything app” with a new financial services tool called X Money, which is expected to launch for the public this month. China has decided to block Meta’s $2 billion acquisition of agentic AI startup Manus, making a surprise move to unwind a controversial deal.

The S&P 500 is up nearly 10% this month following an unprecedented butincreasingly narrowrally thanks to chipmakers and robust earnings,helping the benchmark recoup all losses after the war in the Middle East upended energy flows. Chip stocks are set for further gains on Monday, with names such as Qualcomm Inc., Intel Corp. and Micron Technology Inc. rising in premarket trading. Nasdaq 100 futures climbed 0.2%.

While Friday witnessed new records for the S&P 500 and Nasdaq 100, hegde funds are selling tech stocks, leadership is extremely narrow, and the S&P equal weight index closed negative on the week

Systematic strategies have bought stocks aggressively, but some investors have less conviction. Hedge funds are using the US equity rally to reduce risks, according totraders on Goldman's prime brokerage desk,who point out significant degrossing and selling to tech stocks.

Some Wall Street strategists say it may be a good time to buy insurance via options, such as pure stock hedges or broader protection against higher interest rates. Morgan Stanley strategist Michael Wilson, meanwhile, expects any potential pullbacks to be shallow given passive investors are still under-risked.

The signs of caution come as traffic through the Strait of Hormuz remains at a near-complete halt, pushing WTI back above $96. Goldman Sachs analysts lifted their oil-price forecasts again, saying that an estimated 14.5 million barrels a day of Persian Gulf crude production losses are driving global oil inventories to draw at a record pace.

“Even if we do get a deal, oil is not going back to pre-war levels,” wrote Mohit Kumar, chief economist and strategist for Europe at Jefferies. “We need to factor in some degree of stagflationary impact. The US should be the least impacted, South Asia the most impacted, while Europe should be somewhere in between.”

Yet markets remain largely unfazed by continued oil price increases; for them the AI narrative takes precedence. Traders continue to chase the theme through the semiconductor complex, pushing the SOX Index to its most overbought level in 15 years.The SOX has also completely dislocated from the ISM Manufacturing reading. That gap historically tends to close one way or another.

Source: ZeroHedge News