Wall Street's Rally Looks More Fragile as Inflation Risks Build

Tuesday's session will test a market that has rallied despite little improvement in the risks around it. The conflict with Iran is still keeping pressure on oil, while the Fed is preparing to hold rates steady even as inflation risks become harder to dismiss. After a strong run for stocks, investors now have to decide whether earnings and the AI boom can carry the market through a more expensive and uncertain moment.

The Strait of Hormuz, the narrow waterway that carries a huge share of the world's oil, remains effectively constrained by the conflict with Iran. Tehran has floated a proposal to reopen it, but Washington is skeptical. Donald Trump, according to reports, is not convinced Iran is negotiating in good faith, especially if talks over its nuclear program are pushed aside. The nuclear program was the central rationale for this conflict in the first place, and allowing it to be sidelined now would hardly serve him well ahead of the mid-term elections.

Oil is back above $110 a barrel, which is a kind of tax on shipping, food, plastics, airline tickets, factory margins, family budgets, and eventually voters' patience. Brent futures are rising, and the market is beginning to abandon the comforting idea that oil prices will soon fall back on their own.

This is the uncomfortable setup for investors. Stocks have been on a remarkable run, with the S&P 500, Nasdaq 100, and Nasdaq Composite recently touching records. The rebound has been powered in large part by artificial intelligence, which has become the market's favorite answer to every hard question.

To be fair, the rally has not been limited to tech. Most major sectors have gained ground in April, and the Nasdaq 100 has risen in 16 of the past 19 sessions. Compared with Europe, the United States has regained market leadership. Compared with parts of Asia, however, America looks less dominant: Japan, Taiwan, and South Korea have all benefited heavily from the global race to build computing capacity.

The coming session brings several competing narratives at once. First, energy prices are forcing a rethink of inflation. Second, the Federal Reserve is set to meet Wednesday, and investors widely expect no change in interest rates. Third, corporate America is reporting earnings in bulk. Coca-Cola, General Motors, Starbucks, UPS, UnitedHealth, Verizon, Visa, and Mondelez are among the companies due to give investors fresh evidence about the health of the consumer and the cost of doing business.

Markets are less interested in whether Jerome Powell and his colleagues keep rates unchanged. They almost certainly will. The harder question is whether today's inflation pressure is mostly an energy shock caused by the Middle East conflict, or whether it is becoming something more stubborn.

Then there is the AI trade, which suddenly looks less invincible. Oracle fell sharply in premarket trading after reporting from The Wall Street Journal said OpenAI had missed internal revenue and user targets. Oracle's cloud ambitions are closely tied to OpenAI's enormous data-center spending plans. CoreWeave, another OpenAI infrastructure provider, and SoftBank, a major OpenAI investor, also came under pressure. Nvidia, AMD, and Arm were down.

The earnings news is mixed enough to keep the session interesting. General Motors rose after lifting its full-year earnings forecast, helped by a resilient U.S. auto market and an expected tariff refund. Coca-Cola gained after raising its annual adjusted profit outlook. UPS fell after reporting a sharp drop in adjusted profit. Spotify slid after issuing a weaker-than-expected second-quarter profit forecast. BP plc's earnings more than doubled, helped by oil trading. Barclays fell after one-off charges. CATL, the Chinese battery giant, dropped after announcing a discounted $5 billion share placement.

Today's economic highlights:

Today's agenda includes: the Bank of Japan's interest rate decision and quarterly outlook report in Japan; the unemployment rate in Spain; unemployment benefit claims in France; in the United States, the S&P/Case-Shiller home price index, the Conference Board's consumer confidence, and the API crude oil stock change; finally, ECB President Christine Lagarde's speech in the Euro Area. See the full calendar here.

• Dollar index: 98.687
• Gold: $4,560
• Crude Oil (BRENT): $105.4 (WTI) $101.2
• United States 10 years: 4.37%
• BITCOIN: $76,198

In corporate news:

• OpenAI reportedly missed key revenue and user targets, raising internal concerns about whether it can sustain massive data-center spending ahead of a potential IPO.
• Bed Bath & Beyond narrowed its first-quarter loss as cost cuts, efficiency improvements and stronger customer engagement helped performance.
• Foreign carmakers warned they may pull their cheapest models from the U.S. market without a renewed USMCA trade deal.
• CATL raised $5 billion through a share placement to fund its expansion into renewable energy and electrification.
• Meta is preparing for the possibility of unwinding its acquisition of AI startup Manus after China blocked the deal on national-security grounds.
• BP plc doubled quarterly profit to $3.2 billion as oil-market volatility linked to the Iran conflict boosted trading results.
• Novartis maintained its 2026 guidance and said upcoming drug-trial data could support an upgrade to its longer-term growth outlook.
• Starbucks is expected to return to earnings growth, with analysts forecasting quarterly revenue of $9.17 billion.
• Smithfield Foods reported higher fiscal first-quarter adjusted earnings and sales, while reaffirming low-single-digit sales growth guidance for 2026.
• Walt Disney's ABC came under renewed political pressure after Donald Trump called for Jimmy Kimmel to be fired over a joke about Melania Trump.
• Australia proposed a 2.25% levy on Meta, Alphabet's Google and TikTok unless they strike payment deals with local news publishers.
• Starboard Value has taken a stake in software publisher Dynatrace, according to the WSJ.
• Google signs a classified AI contract with the Pentagon, according to The Information.
• The FDA proposes withdrawing an Amgen treatment for a rare autoimmune disease.
• Today's key earnings reports: Visa, The Coca-Cola Company, T-Mobile US, Corning, Welltower, Booking, S&P Global, Starbucks, Waste Management, United Parcel Service, Mondelez, General Motors

Analyst Recommendations:

• Commvault Systems, Inc.: Jefferies downgrades to hold from buy with a target price of USD 105.
• Dt Midstream, Inc.: Morgan Stanley upgrades to market weight from underweight and raises the target price from USD 139 to USD 165.
• Ibm: HSBC upgrades to hold from reduce and raises the target price from USD 218 to USD 231.
• Nucor Corporation: UBS downgrades to neutral from buy and raises the target price from USD 190 to USD 224.
• Old Dominion Freight Line, Inc.: Baird upgrades to neutral from underperform with a price target raised from USD 204 to USD 229.
• Rambus Inc.: Baird downgrades to neutral from outperform with a target price of USD 120.
• Amkor Technology, Inc.: CTBC Securities Investment Service Co LTD maintains its buy recommendation and raises the target price from USD 63 to USD 120.
• Apa Corporation: Morgan Stanley maintains its underweight recommendation and raises the target price from USD 22 to USD 43.
• Ares Management Corporation: JP Morgan maintains its overweight recommendation and reduces the target price from USD 188 to USD 144.
• Booking Holdings Inc.: Evercore ISI maintains its outperform rating and reduces the target price from USD 250 to USD 10.
• Chevron Corporation: Morgan Stanley maintains its overweight recommendation and raises the target price from USD 174 to USD 212.
• Darling Ingredients Inc.: TD Cowen maintains its buy recommendation and raises the target price from USD 58 to USD 72.
• Elf Beauty: Baird maintains its outperform rating and reduces the target price from USD 115 to USD 90.
• Etsy, Inc.: UBS maintains its neutral recommendation and raises the target price from USD 53 to USD 72.
• Klaviyo, Inc.: Citi maintains its buy recommendation and reduces the target price from USD 40 to USD 29.
• Molina Healthcare, Inc.: Bernstein maintains its outperform recommendation and raises the target price from USD 173 to USD 208.
• Murphy Oil Corporation: Morgan Stanley maintains its underweight recommendation and raises the target price from USD 25 to USD 37.
• Servicenow, Inc.: Freedom Broker maintains its buy recommendation and reduces the target price from USD 180 to USD 120.
• Teradyne, Inc.: Evercore ISI maintains its outperform rating and raises the target price from USD 320 to USD 430.
• Texas Instruments Incorporated: DZ Bank AG Research maintains its sell recommendation and raises the target price from USD 155 to USD 215.