Dow Hits Record as Rally Broadens Beyond Mega Cap Tech

Dow Hits Record as Rally Broadens Beyond Mega Cap Tech

U.S. equities finished higher for an eighth straight week, with the Dow Jones Industrial Average gaining 2.1% to a record high close of 50,579.70, the S&P 500 adding 0.9% to 7,473.47 (just below its mid May record), and the Nasdaq Composite rising 0.5% to 26,343.97. Leadership broadened meaningfully, with the Russell 2000 jumping 2.7% to 2,869.21 and the S&P MidCap 400 up 1.8%, while value outperformed growth and the equal weight S&P 500 outpaced the cap weighted index. International markets were strong in local currency terms, led by Germany’s DAX (+3.9%), Japan’s Nikkei 225 (+3.1%), the STOXX Europe 600 (+3.0%), and the FTSE 100 (+2.7%), while China lagged with the CSI 300 down 0.3% and the Hang Seng off 1.4%.

Growth Meets Inflation

May flash PMI data pointed to a U.S. economy that is still expanding but with renewed price pressures, complicating the disinflation narrative. The S&P Global Composite Output Index held at 51.7, signaling modest growth, while the Manufacturing PMI strengthened to 55.3, a four year high, and Services eased to 50.9, a two month low. Input and output price indicators surged within the survey, reinforcing the idea that goods inflation is reaccelerating at the margin even as services activity cools, and helping explain why long end yields stayed elevated through the week.

Consumers Turn Cautious

Consumer sentiment weakened sharply and inflation expectations climbed, adding a softer demand signal alongside the firmer activity data. The University of Michigan Index of Consumer Sentiment fell to 44.8, a record low, while year ahead inflation expectations rose to 4.8% and long run expectations climbed to 3.9%, both near multi decade highs. Housing data was similarly mixed, with the NAHB Housing Market Index at 37, pending home sales up 1.4% in April, and housing starts down 2.8% to a 1.465 million seasonally adjusted annual rate.

Strong First Quarter Earnings

First quarter earnings season effectively wrapped with another set of strong results, though leadership remained heavily concentrated in mega cap technology. With the last of the Magnificent Seven having reported, those seven companies posted average first quarter earnings growth of roughly 63%, versus about 17% for the rest of the S&P 500, underscoring how dependent index level profit growth has been on a narrow group of names. NVIDIA’s results late in the week reinforced AI driven sentiment and helped the broader market shake off an early week wobble, supporting technology leadership even as higher rates created intermittent valuation pressure on the most rate sensitive parts of the market.

Looking Ahead

Looking ahead, the focus shifts to a fresh set of economic releases that will inform the growth and inflation outlook, including key updates on consumer confidence, housing activity, and inflation trends. Markets will also parse any Fed speaker commentary in the context of recent rate volatility and firmer price pressure signals in recent surveys.

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.