Weekend Update #277
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Equity markets traded mixed this week, but eked out gains into the close on Friday. The S&P 500 rose to new all-time highs this week, with the S&P 500 extending its winning streak to 7 consecutive weeks of gains, but with a big pullback on Friday on energy concerns. A hotter-than-expected April inflation report, a meeting between President Donald Trump and President Xi Jinping in China, and AI-related earnings all drove market moves this week. Under the surface, market breadth has deteriorated in May, showing that market gains are increasingly concentrated in AI-related stocks.
To end the week, a global bond selloff deepened as higher oil prices weighed on prices. The U.S. 30-year Treasury yield reached 5.12%, their highest since 2023. The U.S. 10-year Treasury yield reached 4.60%, rising the most in one week since the Liberation Day volatility in April 2025. Japan’s 30-year yield also hit a new all-time high of 4.03%. The UK’s 30-year gilt yield reached 5.85%, a 28-year high. Brent Crude reached $109.40 per barrel on Friday, a high since May 5th, and a signal of increasing fear without a deal in place over opening the Strait of Hormuz. The energy pressures have market participants betting that central banks may need to hike rates to combat inflation. To end the week, the market-implied rates showed a 29.3% chance of a rate hike by the Federal Reserve by the final meeting of 2026.
In economic data for the week, a hot CPI report for April on Tuesday shifted investor focus to inflation risks. The headline CPI month-over-month metric came in line with economists’ estimates at 0.6%, but all other key metrics surpassed estimates. Headline inflation rose 3.8% year-over-year in April, the hottest pace since May 2023 and well above the Federal Reserve’s 2.0% target. Adjusted for food and energy, Core CPI rose 2.8% year-over-year, showing broader inflationary pressures than economists had expected. Wednesday’s PPI report for April also showed significant inflation pressures, rising 1.4% month-over-month, the biggest monthly jump since March 2022. The PPI index rose 6.0% year-over-year, the hottest pace since December 2022. The NFIB’s Small Business Optimism April report showed sentiment among small businesses around the lowest levels since Liberation Day lows last April, as expected weak demand is weighing on their outlooks. Retail Sales in April showed relativel resilience, rising 0.5% month-over-month and 0.5% when excluding automobiles and gas. Initial Jobless Claims for the week ended May 9th rose to 211,000, off of recent lows but not pointing to a major shift in unemployment in May.
Under these stressed market conditions, the Senate confirmed Kevin Warsh as the next chairman of the Federal Reserve on Tuesday. In the historic 54-45 vote, it was the narrowest and most partisan confirmation in history. Jerome Powell’s term as Fed Chair officially ended on May 15, so Fed Chair Kevin Warsh looks to be tested early in a tough balance between inflation and labor market risks.
Investors also looked to outcomes from the Trump-Xi summit in Beijing for hints on policy changes and geopolitical shifts, where incremental progress was made without any major breakthroughs. The U.S. approved Nvidia sales of its H200 chips to 10 Chinese companies, which was a major win for Nvidia. However, on Friday, President Trump reported that China had not yet finalized any purchases, preferring to invest in its own chip technology, and AI companies again came under pressure as the summit ended without a major chip framework agreement. President Xi also issued its strongest words of warning for the U.S. not to intervene in Taiwan, with President Trump stating he had made “no commitment either way” on Taiwan.
Friday’s Close (Weekly Performance)
S&P 500 7,408.50 (+0.13%)
Nasdaq 26,225.14 (-0.08%)
Dow Jones 49,526.17 (-0.17%)
Thank you Blue Room Senior Analyst JARED FENLEY.
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