Weekly Commentary (5/11/26) – Tech Stocks & AI-Related Names Power Markets Higher, Once Again
Weekly Commentary (5/11/26) – Tech Stocks & AI-Related Names Power Markets Higher, Once Again
Equity markets closed higher last week as technology stocks and AI-related companies gained investor attention, once again.
For the week, the DJIA gained 0.25% while the S&P 500 jumped 2.36%. The tech-heavy Nasdaq continued in Rally mode as it advanced 4.52%. For the week, the MSCI EAFE Index added 1.09% while emerging market equities (MSCI EM) leapt 6.90%. Small company stocks, represented by the Russell 2000, added 1.73%. Fixed income, represented by the Bloomberg Aggregate, finished higher by 0.26% for the week as yields moved lower. As a result, the 10 YR US Treasury closed at a yield of 4.38% (down ~1bps from the previous week’s closing yield of 4.39%). Gold prices closed at $4,720.40/oz – up 1.95%. The fragile ceasefire in Iran continued and contributed to oil prices moving lower - Oil prices retreated by 6.40% to $95.42 per barrel.
Despite higher energy prices and persistent inflationary concerns and uncertainty, most domestic companies are weathering the storm. 1st quarter earnings have thus far come in much better than anticipated. With nearly 89% of S&P 500 companies reporting, profit growth is expected to be more than 25% with revenue growth roughly 11%. One potential worry - companies are beginning to highlight increased energy costs and their negative impact of future earnings and margins. All-in-all, 1st quarter earnings are the best quarterly earnings in nearly 5 years.
Economic news released last week was encouraging. The ISM Services Index continued its long-term expansion in April but grew more slowly than expected, coming in at 53.6, ahead of expectations. The US services sector continues to hold its own while manufacturing stays in contraction mode. The US added roughly 115k jobs in April – nicely beating consensus. The unemployment rate held steady at 4.3% while average hourly earnings were up 3.6%. Surprisingly, the US labor market remains fairly robust.
The week ahead will feature the closely-watched April Consumer Price Index (CPI) on Tuesday with expectations for headline CPI to be +0.5% m/m and +3.6% y/y. Core CPI is expected to come in at +0.3% m/m and +2.6% y/y. Economists expect headline inflation to cool from March’s sharp energy driven spike, but still remain elevated due to gasoline, shelter, and rent components. Core inflation is seen re accelerating modestly versus March, reflecting lagged shelter effects and services inflation. Investors will be watching to see if the prices remain somewhat contained despite the uncertainty of the conflict in Iran and higher oil prices. The CPI result will give investors good insight into the Fed’s next move. Hotter inflation numbers along with sustained economic growth will likely lead to the Fed staying on the sidelines and holding rates steady. No doubt, lower rates from here would be welcomed as a relief to the housing market and the US’s staggering debt coverage, but we think the markets will have to wait several months for that outcome. April’s Producer Price Index is due on Thursday and is expected to have risen by 0.4% m/m for headline and 0.2% y/y.
Expect market choppiness this week as investors digest a slew of earnings and economic releases along with news of a possible end to hostilities in the Middle East (unlikely …). The day-to-day noise of the markets and geopolitics can be dizzying. Diversification, patience and a bias towards quality will help investors manage through this period of heightened geopolitical risk and uncertainty.
Enjoy the week.