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Stocks Climb a Ninth Straight Week as Oil Tumbles
U.S. stocks pushed to fresh highs, with the S&P 500 up 1.4%, the Dow up 0.9%, the Nasdaq up 2.4%, the Russell 2000 up 1.7%, and the S&P MidCap 400 up 1.4%. Leadership leaned to growth and tech, with large cap growth up 2.3% versus large cap value up 0.7%, and information technology up 4.6% while energy fell 5.4% on the slide in oil. International markets participated, with developed international (MSCI EAFE) up 1.1% and emerging markets up 4.0%. Cross asset, the 10-year Treasury yield ended near 4.44% and the 30-year near 4.98%, while WTI crude fell roughly 9.5% on the week.
Fed Stays Cautious
April PCE inflation stayed hot, with headline PCE up 0.4% m/m and 3.8% y/y, and core PCE up 0.2% m/m and 3.3% y/y. Consumer spending rose 0.5% in April while personal income was roughly flat, a mix that kept the market focused on whether demand is easing enough to cool prices. Fed messaging leaned cautious, with officials highlighting upside inflation risks and willingness to keep policy restrictive, and some signaling rates could rise if inflation reaccelerates.
GDP Growth Revised Lower
First quarter GDP growth was revised down to a 1.6% annualized pace from the initial 2.0% estimate, with the revision tied to weaker consumer spending and investment than first reported. April durable goods orders rose 7.9%, driven by a 21.5% jump in transportation equipment, while orders excluding transportation increased 1.1%. The week’s risk sentiment was also influenced by optimism around easing Middle East energy disruption risks, which helped support equities and contributed to the pullback in yields.
Corporate Earnings Strengthen
Corporate profitability signals remained firm, with GDP based corporate profits up 12% over the past year and domestic non-financial corporate margins near 18%, levels that have helped support a broadening in leadership beyond the largest mega cap names. Looking ahead to the next earnings season, FactSet highlighted that analysts raised second quarter S&P 500 earnings expectations by 2.5% across April and May, setting a higher bar for mid-July reporting.
Looking Ahead
Looking ahead, Key U.S. releases include the May jobs report, manufacturing PMI and services PMI, and productivity data. Markets will also track updates tied to the U.S. Iran negotiations given their influence on oil prices and risk appetite in recent weeks.
As Always
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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