Five for Friday

Shocks, Reverse, Labor, Dollar and Energy

1. Shocks

There’s a maxim in markets that the cure for high oil prices is…high oil prices – the implication being that higher prices destroy demand (less travel and discretionary spending), create new supply (existing producers ramping output to capitalize and more capital-intensive projects becoming viable), and often force a policy response (e.g., reserve releases, military de-escalation, etc.). High energy prices are difficult to sustain, and are a large reason why big spikes in oil over the last 40 years haven’t often portended lower equity markets (as we noted Monday). Take the Russian invasion of Ukraine in 2022: oil prices peaked just a week after the invasion and were 20% lower 12 months after the incursion. Shocks can be painful, but energy shocks – especially in today’s diverse production environment – are rarely sustained.  

2. Reverse

Per partners at Strategas (a Baird company), Monday’s volatile trading session was one of just 26 days since 1981 in which the S&P 500 opened below the prior day’s low only to close above the prior day’s high. Two observations. First, stock market performance following these “positive reversals” tends to be strong, with a median return of 15% over the subsequent year. Which makes sense – a positive reversal should indicate that both the issue weighing on markets is addressed in some way and that the overall backdrop remains bullish for stocks. Secondly, and maybe more importantly, of the 26 instances since 1981, half have come in the last eight years. Between the speed / reach of modern newsflow and structural changes to the market (more algorithmic trading, retail participation, and concentration), among other things, intraday volatility is higher than it’s been in the past. It doesn’t change the reason we invest – profit growth from quality companies – but it can make it harder to manage, especially given the increasingly negative tilt of the media.

3. Labor

On job-posting site Indeed, the share of job postings advertising remote/hybrid terms is at a multi-year high. In a vacuum, remote work acts as a non‑wage benefit that firms use to attract workers when labor markets are tight. Despite the anxiety about AI’s impact on work and the broader economic backdrop (oil prices, tariffs, etc.), demand for workers still seems to be outpacing supply. That dynamic creates an environment favorable to solid, above-inflation wage growth that could keep consumer spending (further boosted by tax refunds) afloat in 2026.

4. Dollar

For all the angst around de-dollarization that popped up with last year’s U.S. dollar weakness, it might surprise many to know that the dollar is actually up since the midpoint of 2025 (as well as being up over the last 5-, 10-, 20-, and 30-year periods). Currencies are cyclical, so the dollar may well head lower from here (and we shouldn’t panic about that if it does), but the widespread calls for a crash (and ensuing financial calamity) now look more than ever like fear-mongering. Despite plenty of incentives for foreign powers to diversify their reserve holdings and currency usage, dollar transactions are actually up across the globe in recent years (the dollar touches one leg of nine out of every ten currency transactions, an increase from 2022, 2019, 2016, and 2013). Said another way, the dollar's intermediary role in forex markets remains unmatched and unchallenged, which reinforces essential network effects. In our view, the dollar remains on solid ground.  

5. Energy

Given the high and rising power demands of the AI/computing-driven world we’re heading toward, it’s clear that fulfilling the energy needs of the next generation will require an all hands on deck approach – an exercise in both innovation and ingenuity. On the latter, I found this back-of-napkin analysis from the EIA on the electricity generating potential of retired military aircraft (housed at the aptly-named “Boneyard” in Tuscon, Arizona) a fascinating read.  

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This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.

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