Stocks Try to Stabilize as Palantir Pays the 'Valuation Tax'

Futures are mildly higher to start Tuesday after Monday's pullback on the Iran flare-up. Crude spiked hard after the UAE intercepted Iranian missiles and U.S. destroyers sailed the Strait of Hormuz under fire. Oil is holding steady, working off a little of Monday's spike, but the Iran situation remains uncertain and unresolved.

The good news is that under the surface, the indexes and many stocks are consolidating rather than breaking down. Most major earnings reports are now in the books, and many stocks that ran up into the news are doing what extended stocks should do: spending some time digesting and basing. The bigger concern would be if the sell-the-news pressure continued and drove a sudden break of support on rising volume. That is not happening, and that is constructive.

Palantir Pays the Valuation Tax

Palantir Technologies (PLTR) is the morning's headline and a good illustration of the market mood.

The company's quarterly numbers were solid. Q1 revenue came in at $1.63 billion versus the $1.54 billion estimate, up 85% year over year. EPS of $0.33 beat the $0.28 estimate.

Q2 revenue guidance of $1.80 billion came in well above the $1.68 billion consensus, and full-year 2026 was raised to $7.65 billion versus the $7.27 billion expected. The U.S. commercial business stayed on its triple-digit growth trajectory.

The reaction is a 2% to 3% drop in premarket trading. This is what happens when a stock is priced for perfection and has a forward P/E over 100. A strong beat with raised guidance is not enough to attract a new wave of buyers.

The stock has been correcting since February, and last quarter's report was met with an 11% decline the next day after strong earnings. Today's reaction is more muted than that, which is actually a small positive for the bulls.

Palantir is part of a broader pattern we have seen this earnings season. A Goldman Sachs (GS) note this week flagged that the median stock beating EPS estimates has outperformed the S&P 500 by only about 20 basis points on the day after reporting, one of the smallest reactions on record. Strong numbers are not getting rewarded like in the past.

The bar to move a stock higher on a beat has gone up, and Palantir is the latest example. The question is whether buyers will change their valuation view after a period of contemplation.

The broader view for many AI stocks is that "sell the news" remains in effect for the names that ran the most into earnings, and these stocks are likely to struggle to move further into new high territory. Keep an eye on Alphabet (GOOGL) , which is struggling to push higher after its extremely strong report.

Iran Stays Chaotic, Oil Holds

The Iran situation remains unresolved and chaotic. U.S. destroyers transited the strait Monday under coordinated Iranian threats, supported by Apache helicopters. The UAE intercepted missiles for the first time since the ceasefire took effect last month. President Trump stated that the conflict could last another two to three weeks.

None of that is good news, but the market is treating it the right way for now: pricing the headlines without panicking. Oil holding steady this morning rather than extending Monday's spike is an important development. Oil tells us more about the market mood than anything else.

The setup that matters is whether oil rolls over from here or pushes through Monday's highs. Brent above $115 sustained for any length of time is a problem for the inflation issue, and we already have an ISM prices index at the highest reading since April 2022.

The 10-year Treasury yield has stayed above its 50-day moving average since the war began, which is a quiet headwind that nobody is talking about.

The Earnings Calendar Shifts

This week we get the second-tier wave of reports, and that is where the work is for stock pickers. Pfizer (PFE) reports before the open this morning. Advanced Micro Devices (AMD) , Shopify (SHOP) , PayPal (PYPL) , Marathon Petroleum (MPC) , Duke Energy (DUK) , Super Micro Computer (SMCI) , and Electronic Arts (EA) report later today, with AMD after the close as the headline.

Wednesday brings Disney (DIS) , Uber (UBER) , and DoorDash (DASH) . Thursday is heavy with The Trade Desk (TTD) , Coinbase Global (COIN) , Airbnb (ABNB) , McDonald's (MCD) , and Datadog (DDOG) . Friday closes the week with the April nonfarm payrolls report.

For perspective, with about 63% of the S&P 500 reported, FactSet has Q1 blended earnings growth at 27.1%. That is an outstanding number. The potential for peak margin and peak growth that I discussed on Friday is still on the table, but it is not an immediate problem. If the market is going to top, it is likely to be triggered by downward revisions in earnings.

My Game Plan

The technical picture is the most encouraging part of the setup. Stocks are basing rather than breaking. The Mag 7 outside of Alphabet is doing exactly what extended names should do after big runs, which is sit. That action creates new opportunities in names that are not technically extended and are starting to attract rotation.

The plan is the same as Monday. Patience, position sizing, and stock picking. Small-caps are starting to report, and that is where the focus is for the next two weeks. Earnings dates matter more than the macro headlines for any individual position right now. The Iran situation will move oil and rates around, but it is not yet changing the underlying earnings picture.

If you are so inclined, the better setups remain in names that pulled back on Thursday and Friday and held support, rather than the leaders that ran straight up last week. The basing action is healthy, but give it some time.

At the time of publication, Rev Shark was long GOOGL.