Weekly Recap:

by Michael Reinking, CFA & Eric Criscuolo

Last week, the S&P 500 closed out the month of April up >10%, on a 5-week winning streak. The index continued to rally despite oil prices and yields approaching recent highs again. It was a busy week of central bank commentary, earnings and of course a steady stream of Iran related headlines. The opposing forces of higher energy costs and a stellar earnings season, which is highlighting an inflection in demand for companies exposed to the AI Capex Boom, has forced traders to do some serious mental gymnastics. This dynamic and mispositioning heading into the end of Q1, helps to explain the historic rally seen over the last month.  

This week had a little bit of everything: Cinco De Mayo Fiestas, more whiplash geopolitical headlines, jaw dropping earnings, a couple of Knicks victories and the release of UFO files, which seemed to spark a rally in the space stocks today (UFO ~+7%). Amidst it all the S&P 500 extended its winning streak to six weeks up >2%, tagging 7,400 today. As the AI trade is back in full swing the market cap-weighted version of the index is outperforming the equal-weight version for the first time this year. 

The Iran headlines this week have been confusing to say the least and has created some volatility again. However, this has been mostly contained to oil, as each equity pullback has been very shallow. Over the weekend President Trump announced Project Freedom, a plan to guide stranded ships out of the Strait of Hormuz. This was ultimately paused days later after Iran drones attacked ships in the Strait and missiles struck the UAE. As the US and Iran exchange fire in the Strait, the Ceasefire holds (we're scratching our heads too). A very high ranking US official called those exchanges “love taps”. Earlier this week Axios reported that the two sides were working on a one-page memorandum of understanding to end the war and set a framework for more detailed nuclear negotiations. There is still no update on that process though markets are clearly looking for a diplomatic solution as opposed to an escalation of kinetic activity. All of this is happening ahead of President Trump’s scheduled trip to China next week. Oil prices are down >5% for the week with ICE Brent hovering around $100/brl after trading up to $115 on Monday.

If the late iconic voice of the Yankees John Sterling was writing this note he’d sum it up by saying, “The Semis Win! Theeeeeee Semis Win!”. Our thoughts and prayers go out to his family and friends, and he will forever hold a special place in the hearts of Yankee fans. Tech was the primary driver of gains this week with the NYSE 100 up ~6% but the NYSE Semi index continues to defy gravity up >10% for the week and 70% YTD. Earnings, new investment commitments and partnership deals continue to drive the upside. After Anthropic announced a commitment to spend $200B over the next 5 years on Google chips and cloud services ,The Information, noted that of the $2T of revenue backlog across AMZN, MSFT, GOOG and ORCL ~50% comes from Anthropic and Open AI. Below is a chart of the ICE Semi index which was created using publicly sourced tokens. 

To put a bow on earnings at a high level 89% of companies in the S&P 500 have reported to date, with >80% of companies beating on both EPS and revenues. The blended growth rate for Q1 earnings is now >25% on a y/y basis more than 2X the estimate coming into the reporting season - see FactSet Earnings Insight for some more details. 

The mega-cap tech triumvirate (info tech, comm services, cons. discret) were the only sectors with meaningful gains. It was not just semiconductors within info tech as software was also up ~5%. Earnings within the sub-sector this week were mixed but there were a couple of very strong reports including Fortinet which helped the cyber security stocks rebound. Memory and hardware also moved higher.

Away from the tech-heavy sectors, industrials is one of the few trading higher this week. There has been a mixed response to some of the aerospace and defense earnings, but companies levered to the data center buildout and automation have had very strong results. Airlines were helped by the drop in oil prices but there has been some weakness in other logistics/transportation stocks after Amazon announced it was launching Amazon Supply Chain Services.

Energy and Utilities have been the big underperformers for the week, both down >3%. Financials and healthcare were both down a bit more than 1% and are the only two sectors lower YTD. Fnancials services/payments processors were some of the worst preforming after disappointing earnings (FI/PYPL/FIS). Banks were also under pressure with rate sensitive money center and regional banks underperforming. Berkshire held its Annual Shareholders Meeting extravaganza (along with Q1 earnings) on Saturday. It was Greg Abel’s first time leading the annual meeting after taking over for GOAT Warren Buffet. Results were generally solid across business lines. The company continued to hoard cash with its pile reaching nearly $400B or just under 40% of its market cap. The company continued to trim its equity portfolio selling $8.15B (portfolio value $288B). There was some disappointment that the co. only bought back ~$235ml in stock.

This week’s key piece of economic data was the monthly payroll report for April. The headline numbers were strong, continuing the streak of generally solid labor data. 115k jobs were added, well above the 62k consensus estimate. March’s strong print was also revised higher, from 178k to 185k. However February’s sharp decline was revised even lower, from -133k to -156k.  Health care (+37k) continued to see strong job gains, inline with its 12m average. Transportation and warehousing (+30k) was a leader as well but almost all of the gains were from couriers and messengers. Retail trade added 22k. Publishing and data processing industries- which include software and data centers, along with traditional media businesses- saw employment edge lower, continuing the multi-year downtrend since COVID (see below). We’re calling this out due to the debate about AI’s impact on employment, especially in the Tech sector.

The Household survey was not as robust as the Establishment data. Unemployment remained at 4.3% but that was due to rounding. The participation rate fell slightly from 61.9% to 61.8%. The labor force declined 92k while the number of employed fell 226k.  Average hourly earnings rose but came in below estimates. Yields reacted by moving lower despite the headline strength, underscoring the puts and takes within the release.

Factory Orders came in above estimates and continued the generally solid string of economic data, especially on the manufacturing side of things (ISM and Orders below).

ISM Services for April fell slightly from March and was essentially in line with consensus. While Activity rose, New Orders fell from 60.6 to 53.5. Prices were unchanged but remained above 70.

New Home Sales for March rose from February, continuing to climb off of January’s low print.

The Treasury Quarterly Refunding statement held auction sizes for notes and bonds steady for Q2 and ”anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters”. That statement was subject to speculation as to whether it would be altered to hint at an increase in issuance in the near-future, so the lack of change was modestly bullish for Treasuries. It also signals Treasury remains willing to fund the growing deficit by issuing more bills instead of longer-dated debt.

Treasuries/Currencies - Yields bounced around this week and ended up relatively unchanged. The 2y traded in a 17bp range and finished flat. Markets have priced in a 75% chance that the Fed remains on hold through December, virtually unchanged from last Friday but there is now more chance of a hike priced in (15%) than a cut (10%). The 30y tested 5%, a level that has served as a ceiling all the way back to 2007. The MOVE index fell back to below 70 after rising to ~80 earlier this month.

The Dollar fell modestly this week and the US Dollar Index slipped below its 200d ma of ~98.35, to ~97.75.

Global Equities - Asian markets lead; Europe flat 

The long-awaited Trump/Xi Summit will finally happen May 14-15. Economic data shifts to inflation with April CPI the headliner. PPI, Retail sales and Existing Home sales will also be on the calendar. Earnings will continue to be busy but will be less impactful going forward until we start to get late cycle tech and retail earnings later this month. The Middle East will remain a focal point as the US and Iran continue to hammer out the 14-point MOU, and maybe maintain a ceasefire by only launching a few missiles at each other. In any case it should be quite interesting ahead of President Trump’s visit to China. The Senate is expected to vote on Kevin Warsh’s nomination as Fed Chair with Jerome Powell’s term coming to end May 15. It’s also a monthly options expiration at the end of the week. The Knicks will hopefully head to the Eastern Conference Finals. Most importantly, Happy Mother’s Day!!!  

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