With last week’s release of the May personal consumption expenditures (PCE) report, there was a quick reignition of the debate that’s currently skewed by those looking for a rate hike by the end of 2026.
But as mentioned last week, these traditional inflation gauges look backwards. While it's important to acknowledge that this popular narrative had some teeth leading up to the recent ceasefire agreement with Iran, the winds of change within the inflation dialogue look to be abruptly altered now.
The fact that WTI Crude oil has corrected from $105 to $70 per barrel in less than 30 days has economists working overtime to modify their inflation models: 
Most importantly, soon after the ceasefire agreement, the market tested the overall geopolitical risk premium after subsequent U.S. strikes and it was quickly faded. This key signal clearly shows that when bad news stops moving prices, the overall risk is already priced in.
It may seem illogical for oil prices to crash by over $30 a barrel so quickly. However, it was fundamental. That is, the oil price contraction was a violent popping of the speculative war premium bubble that’s been overhanging the crude futures market.
Traders bought future oil contracts as insurance against a massive permanent disruption. But once an overall peace framework was in sight, that worst-case scenario evaporated, causing traders to quickly liquidate long positions. The premium unwound almost overnight.
Why is this important? We can simply point to Wharton professor emeritus Jeremy Siegel’s longstanding research history that emphasizes how quickly volatile energy prices can swing headline inflation data.
When oil prices crash rapidly, headline inflation can sink.
Energy has a 7%-8% weight in the total consumer price index basket. Gasoline alone makes up over 3%. As such, a single double-digit drop in fuel prices can easily slice 0.3% to 0.5% off the headline monthly CPI calculation.
Knowing this, we can identify $70 a barrel as a structural price floor and breakeven target. The crude price fall shows the current inflation panic narrative is overdone.
The July 14 CPI report will be telling, especially as earnings season approaches. Let’s begin to lay the groundwork for what we can expect.
First, there are 12,840 analyst ratings on stocks in the S&P 500 currently. Of them, 59.4% are buys, 35.7% are holds, and 4.9% are sells: 
This data is extraordinarily optimistic. The five-year buy rating average is 55.8%.
At the sector level, analysts are unsurprisingly especially optimistic about information technology, communication services, materials, and energy: 
Since March 31, the percentage of buy ratings has increased to 59.4% from 58.7%, even with the parabolic market price increases throughout Q2. And it’s broadly distributed. Nine of 11 sectors have recorded an increase in their buy ratings over this period.
If 59.4% is the final percentage of buy ratings for the month, it will be the second highest mark on record going back to at least 2010:
Some say the optimism is unfounded. Those espousing that opinion pointed to last Tuesday’s dramatic selloff. U.S. semis dropped 7% alone as global memory stocks dropped 14%.
These may seem like huge declines, but historically they’re normal fluctuations in a bull market rather than a sign of any market top. Since 2011, there have been 17 similar one-day declines in semis of 6% or more. They’ve proven to be buyable pullbacks almost every time: 
A month later there’s an 88% win ratio with a median gain of 11.6%.
Three months later, it’s an 88% win ratio with a 22.7% gain.
And six months later, it’s a 94% win ratio with a 39% gain.
The only time these pullbacks weren’t viable was 2024 to early 2025:
But keep in mind the visibility for AI spending was far lower than it is today. Fortuitously, last Wednesday we were immediately provided earnings data from Micron.
To put it bluntly, Micron’s revenue and earnings were absolutely eye-popping. Revenue more than quadrupled, coming in at $41.46 billion versus an estimated $35.84 billion and $9.3 billion a year prior. Per-share earnings were $25.11 cents versus an estimated $20.78.
Micron said it now expects revenue of about $50 billion for the upcoming quarter. It was $11.3 billion a year earlier.
But most importantly, Micron has 16 long-term sales agreements, including with data center operators and automakers, that lock in sales for three to five years. These financial commitments alone are expected to generate $22 billion.
It’s clear, unreputable evidence that the AI infrastructure trade still has legs. These revenue and earnings results led to Micron’s net income during the quarter to a record-setting $28.24 billion versus $1.89 billion a year ago.
It all led to Micron trading last Thursday morning up more than 11%: 
This is why institutional money has been flowing to Micron stock at unprecedented levels:
This earnings strength isn’t isolated in a single stock. There’s plenty of opportunity for the broader market since the overall valuation for equities is reasonable. For example, consider the S&P 500’s 2027 EPS estimate:
At the start of 2026, consensus 2027 EPS was $352. Currently, consensus 2027 EPS is $399. That’s a nearly $48 increase and a lower price-earnings ratio overall, from 19.4 times to 18.4 times, even after a parabolic price move.
We knew 2026 would be the year of earnings, saying how they’d support the case for P/E expansion into 2027.
This year has proven once again that earnings earnings earnings continue to show how there’s room for growth still.
Let’s look at three of the most extreme examples – SanDisk, Seagate, and Western Digital. They’ve all had extraordinary gains over the past year in their stock price:
Some may say growth like this is an indication the run is near an end. But the fundamental data indicates otherwise.
SanDisk (SNDK) is up an incredible 4,100% over the past year. But what’s most remarkable is that despite this growth, the P/E ratio has held below 11:
Also, forward-looking EPS estimates are explosive. Full-year 2026 EPS is estimated to reach $65.50 and triple to $204.83 in fiscal 2028:
These underlying fundamentals have driven consistent institutional money flows over the past year:
The next example is Seagate (STX), which is up a “mere” 712% over the last year:
On the surface, it seems the stock is more expensive as its P/E ratio just reached over 38 times. But if you go deeper, there have been massive EPS surprises each of the last four quarters:
They have an accelerating uptrend too, indicating analysts have been behind the ball on Seagate all year. So, we can expect the P/E ratio to compress as earnings continue their outsized growth.
Institutional capital clearly believes this to be the case:
Lastly, Western Digital (WDC) is up 1,103% over the last year:
This has expanded the current P/E to nearly 39 times. Again, the question becomes is there a forward-looking fundamental driver to support such a ramp up and subsequently compress P/E in the future?
This year’s sales should reach around $13 billion with net income of $3.8 billion. Fast forward to 2028’s expectation for sales to nearly double to $23.1 billion, with net income passing $10 billion:
This type of revenue and profit growth are the tailwinds attracting institutional money:
So, as the next earnings season arrives, we at Cornerstone think there’s clear objective data that earnings will keep shining, with historical, eye-popping earnings data again overtaking the headlines. Micron last week was just a teaser.
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