A protester waves the upside down U.S. flag during the

An inversion of the norm in US stocks (Getty Images)

War and AI doubts have fueled an unprecedented divergence between stock prices and earnings estimates

The S&P 500 has never been down this much when earnings estimates have risen by this much, based on data going back to Q2 1990.

Luke Kawa, David Crowther

Over the long term, earnings drive stock prices.

But in the here and now, we’re experiencing an unprecedented divergence between the S&P 500’s earnings estimates and the performance of the benchmark US stock index, driven by skittishness about the return of oil shipments through the Strait of Hormuz and the long-term ROI for the hundreds of billions in AI capex.

Over the three months ended March 27, analysts have ratcheted up their projected bottom-line results for the largest US publicly traded companies by 8%. Over the same time, those stocks are down 8%. Stocks have never been down this much when earnings estimates have risen by this much, based on data going back to Q2 1990.

The closest such episodes to the present environment were in mid-2010 amid fears of a double-dip recession following the financial crisis, and in 2018 following a short-lived blowup in volatility markets.

For what it’s worth, every S&P 500 downturn of at least 14% from a bull market high since the financial crisis has only bottomed after forward earnings estimates start to come under the knife.

Oil price spike not recession fuel (yet)

The world in which these earnings estimates are realized is incompatible with a long-lived oil disruption that sparks a US economic downturn. Oil price spikes are infamously a drag on other parts of consumers’ spending; accordingly, durables and household personal products are the worst two industry groups in the S&P 500 since the end of February.

But as a general matter, markets do not appear to be pricing in elevated recession risk. For all the conniptions in private credit, public high-yield credit isn’t screaming. Spreads in US junk bonds (excluding energy!) are still below their average level since the start of 2015.

Heck, even the oil markets haven’t shown the same degree of alarm (even at the front end!) despite a more meaningful supply shock than what followed Russia’s invasion of Ukraine. Stock markets have the luxury of being more forward-looking than commodity markets, because commodity markets must clear in spot: oil has to be delivered to a certain place at a certain time at this agreed-upon price. WTI oil futures for delivery in May have to reflect supply/demand dynamics in May, not a rose-colored view of a future where we’ve gone from conflict to kumbaya. That’s the danger associated with imagining $150-per-barrel oil to be as unlikely and impractical as 150% tariffs on Chinese imports.

Megacaps, Megapain

Of course, this unprecedented divergence between earnings (higher) and stocks (lower) is over three months; the war has only been going on for one. The unwillingness to buy into megacap AI stocks — especially hyperscalers, but also Nvidia — despite rising earnings estimates predates the Mideast conflict. Risk-off sentiment has weighed on stocks generally, but the Magnificent 7 have lagged since the attacks commenced.

For some time now, investors have been of the view that 2026 earnings don’t really matter for the hyperscalers and have more creeping doubts on whether this capex binge will prove worth it in the long run — or whether the most meaningful impact on these companies will be the destruction of their free cash flow generation amid these aggressive build-outs. And Nvidia’s fate has been tied to the perception of its biggest customers.

The war started off as a major rotation trade. Three major trades that had been tumbling — software vs. semiconductors, US stocks vs. the rest of world, and the Magnificent 7 vs. S&P 500 equal weight — all enjoyed some nascent reversals in the early days of the war. Of those three, Mag 7 versus equal weight is the only one that’s given up all of that rebound and then some.

No Trump card?

In some respects, the current market situation is similar to 2025. The Q1 peak in stocks came when Walmart, a major component in momentum indexes, issued a poor full-year outlook and once high-flying stocks got clobbered. It started as a momentum-centric rather than tariff-centric sell-off.

This time around, the difference is that many parts of the AI trade (especially the megacaps) didn’t have any momentum coming into this. A theme that investors had already been souring on is continuing to unwind.

“Trump Always Chickens Out” (or TACO) is a popular explanation for why markets haven’t reacted more negatively to the prospect of significant negative economic impacts from this oil supply shock.

It’s also worth remembering that a game of chicken involves two sides barreling toward each other at high speed, and that the chicken only ducks conflict when presented with imminent, catastrophic loss.

Both investors (and the president) have been increasingly conditioned to react late when faced with (or bringing forward) negative market catalysts.

And President Trump isn’t the only party with a vote on this matter. While he can change his mind on how much military action in the Middle East is appropriate as the facts on the ground (and market conditions) evolve, that doesn’t mean leaders in Iran (or Israel) will be moving in lockstep.

None of the market fundamentals, the most impacted asset, or the stock market price action have caused a white-knuckle moment just yet.

Matt Phillips22m

British government weighs removing Palantir from NHS data systems

Officials in the British government are exploring ways to eject defense, intelligence, and AI software company Palantir Technologies from data systems used by the National Health Service, the government-funded health system.

The Financial Times reports:

“The US company was awarded a seven-year £330mn contract in 2023 to create a data platform that collates health waiting lists, patient information and other sensitive data.

Its role has become an increasing source of controversy, given its ties to the US defence sector and its co-founder and CEO Alex Karp’s vocal support for Donald Trump’s immigration crackdown. MPs, NHS staff and medical trade unions have voiced concerns about Palantir’s suitability for managing data in national health systems.”

While Palantir’s AI software services business — aimed at corporate customers — is a fast-growing business line, the US government remains Palantir’s single largest source of revenue, accounting for $1.9 billion in sales in 2025. That’s almost as much as Palantir’s entire commercial division, which logged $2.1 billion in revenue in 2025.

But the company’s close ties to the US government — including providing services to US agencies such as Immigration and Customs Enforcement amid the Trump administration’s mass deportation program, as well as US intelligence and military services — have created resistance to growth in some other areas.

For instance, Switzerland repeatedly rejected Palantir systems, according to recent reporting from Swiss magazine Republik, after officials there raised concerns about data sovereignty and risks data could be accessed by the US government and intelligence services.

Ministers explore triggering break clause in Palantir’s NHS contract

“The US company was awarded a seven-year £330mn contract in 2023 to create a data platform that collates health waiting lists, patient information and other sensitive data.

Its role has become an increasing source of controversy, given its ties to the US defence sector and its co-founder and CEO Alex Karp’s vocal support for Donald Trump’s immigration crackdown. MPs, NHS staff and medical trade unions have voiced concerns about Palantir’s suitability for managing data in national health systems.”

Max Knoblauch2h

Alaska Air lowers its Q1 profit forecast due to surging fuel costs

Alaska Air ticked down in premarket trading on Monday, following the carrier’s announcement that it has lowered its first-quarter profit guidance.

The airline now expects an adjusted loss per share of between $1.50 and $2 in Q1, deeper than its prior guidance range of a $0.50 to $1.50 loss per share.

Fueling the update is, what else, fuel costs. Alaska Air says that the refining margins for its cheapest jet fuel — sourced from Singapore and representing about 20% of overall supply — have spiked 400% since February, from an average of $0.45 per gallon to about $2.25 per gallon. Jet fuel refining margins have surged industrywide to 20-year highs amid the war in Iran, which in turn is sending fares higher.

Alaska said it’s seeing “encouraging revenue trends” heading into the peak summer travel season, despite severe flooding in Hawaii and reduced demand to Puerto Vallarta due to increased cartel violence.

J. Edward Moreno2h

Fermi falls after annual report shows steep losses, still no tenant

Fermi fell after it released its first annual report, which showed the cost for its power site is mounting while it still doesn’t have any customers secured. Shares dropped about 11% in premarket trading following the report’s release.

Fermi, which was cofounded by former Energy Secretary Rick Perry, plans to build nuclear energy infrastructure to power data centers. The company, which still has no revenue, reported a net loss of $486.3 million in 2025, its first year in operation, compared to the $366.5 million loss two analysts polled by FactSet had penciled in.

In September, Fermi announced that it had entered into a nonbinding letter of intent with a tenant to lease a portion of its Project Matador power grid site. That contract was terminated in December and the company has still not found a replacement, though Fermi said Monday that it is in “active discussions with multiple prospective tenants across various stages.”

“We understand the question at the top of every shareholder’s mind: when will Fermi announce its first definitive tenant lease?” the annual report said. “Our answer has remained deliberate and consistent — we will move forward only when the terms, the partner, and the capital structure meet the disciplined capital and risk standards we require for long-term value creation.”

Fermi, which went public in October, is down about 80% since its IPO.

Hyunsoo Rim5h

Brent crude oil tops $116 a barrel as Iran war continues

Oil is on track for its largest-ever monthly gain in March, with Brent crude rising above $116 a barrel Monday morning as the US-Iran war enters its fifth week following a series of escalations over the weekend.

On Sunday, Iran’s parliament speaker warned that US troops would be set “on fire” if they entered the country, as President Trump made a series of escalating statements; the commander in chief posted on Truth Social that the US had destroyed “many long sought after targets” in Iran, and told the Financial Times his “favourite thing is to take the oil in Iran” and that he could seize Kharg Island, the country’s key oil export hub. He maintained, however, that a peace deal could be around the corner, telling reporters aboard Air Force One that Iran had agreed to “most of” the 15-point peace plan floated last week and that the country’s leadership had agreed to allow over 20 oil cargo ships through the Strait of Hormuz.

Asian stocks fell sharply on Monday, with Japan’s Nikkei 225 down about 2.8% and South Korea’s KOSPI off roughly 3%, while European markets initially opened lower before paring losses, with the STOXX 600 last up about 0.5% in morning trading. US futures were modestly higher, perhaps reflecting the 3.4% decline in the last two days of trading last week.

Meanwhile, aluminum prices on the London Metal Exchange jumped around 6% to $3,492 per tonne, nearing a four-year high, after Iran struck two of the Gulf’s largest aluminum smelters on Saturday, which together account for a substantial share of global output.

Separately, The Wall Street Journal reported Sunday that Trump is weighing a military operation to extract ~1,000 pounds of uranium from Iran, citing US officials, a move that could require US troops on the ground for days or longer.

Luke Kawa, Toby Bochan

3/27/26

Stocks tumble with Nasdaq 100 posting largest weekly loss since April tariff sell-off

Fridays have been the worst day for the S&P 500 since the war began.