Weekly Recap:

by MIchael Reinking, CFA & Eric Criscuolo

Last week US markets continued to march higher driven by hopes for an Iran resolution and tech strength as the late cycle earnings continued to blowout expectations. The S&P 500 ended the week up 1.4% and 5% for the month of May, extending its weekly winning streak to 9 weeks (and concurrently 7 days). Despite being the epicenter of capital markets that winning streak is currently the second most important in New York City, after the New York Knicks took game 1 of the NBA finals extending their winning streak to 12 games. The city hasn’t had this type of sports buzz since the 1990’s yet another parallel back to that time frame (though Aaron Judge heading to the IR certainly puts a damper on things).

Ahead of today’s jobs report the fate of the weekly winning streak hung in the balance with major indices holding on to modest gains. Iran remained in limbo, there continued to be a litany of tech/AI related headlines (on both sides of the ledger), tariffs were back in the conversation and crypto was getting smoked.  This morning’s jobs report surprised to the upside for the third consecutive month sending Treasury yields sharply higher as investors were forced to re-think the path of monetary policy and the potential for a more durable inflation shock, officially putting an end to the weekly winning streak.

The recent rally has been one of the most prolific in history and as we’ve noted, despite the index level volatility looking very tame on the surface the volatility at the single stock level was extreme. There have only been 10 prior 9-week winning streaks and only 3 were able to extend into double digits (1957/1963/1985). It is hard to argue that markets weren’t overdue for a pullback, and we didn’t go out with a whimper. The areas of the market that led to the upside got hit the hardest. Before today’s session there were some signs of rotation beneath the surface with healthcare and financials, the only two sectors down YTD, rallying sharply on Thursday. The S&P 500 ended the session down 2.6% and a similar amount for the week. However, despite a >1% declines today the equal-weight version of the index, the Dow Jones Industrial Average and S&P 400/600 ended the week down <1%.  The Russell 2k led to the downside falling >3% today, as the crowded thematics got hit hard including quantum, nuclear, crypto, rare earths and space stocks were down well north of 10%. 

We’ve been highlighting the parabolic move higher in technology since the March low. Trough to peak, the NYSE 100 index was >40%, and the NYSE Semi Index >100% which would be phenomenal 3- or 4-year returns let alone 2 months. Much of this has been driven by a phenomenal Q1 earnings season. This week as we got into some of the last major reports within the sector (ORCL is next week) there were signs of fatigue with companies continuing to beat estimates but unless the results were unequivocally a blowout relative to expectations, the stocks were seeing some profit taking. 

Within the sector the week got off to a positive start with AI pope Jensen Huang giving the keynote at Computex in Taiwan. He announced the launch of a new AI chip for PCs, dismissed the software AI disruption fears and showed he still has the Midas touch when he said Marvell should be the next company to join the Trillion Dollar Club, sending the stock sharply higher.

The news flow this week wasn’t all positive OpenAI CEO Sam Altman acknowledged that clients are starting to pushback on the cost of tokens saying, “at the beginning of this year, it was an issue that never came up (people were totally happy with the amount they were spending) to, all of a sudden, a huge issue.” In recent weeks there have been reports of companies pulling back on these budgets (UBER, AMZN, MSFT).

The biggest surprise this week was Alphabet announcing that it was raising $80B (ultimately increased to $85B) to fund its AI buildout. This included a $10B investment by Berkshire Hathaway, which also announced that it would buy homebuilder Taylor Morrison earlier in the week, as new CEO Greg Abel starts to put some of the company’s cash hoard to work. There was also a $40B ATM equity offering, which from a timing perspective, was quite interesting ahead of the expected $75B SpaceX IPO next week and the other high-profile IPOs in the pipeline. Speaking of the IPO pipeline, S&P decided not to change its index inclusion rules to provide a fast track into the index. 

Mega-cap tech companies have been cash flow/buyback machines over the last decade (Google paused buybacks in Q1 after repurchasing $45B last year), but the AI capex is starting to devour that. This afternoon the FT reported Meta was considering a capital raise of its own while AMZN and MSFT were also mentioned in the story. 

President Trump also signed an executive order asking AI companies to provide the government early access to new models 30 days before public release (down from 90 days in a previous version). Speaking of Anthropic has been given the green light to give 150 companies (including ICE) access to its Mythos model up from the 50 companies given access in April.

For the week defensive sectors and the YTD underperformers ended with gains. Energy also had a bid as oil prices bounced back from last week’s drubbing. REITs also moved higher this week despite the move in yields. This week was Nareit’s REITweek in New York. Residential REITs were some of the best performing. Within financials, banks and insurance stocks were strong while crypto related (COIN/HOOD >-10%) got hit hard. Exchange companies were also hit particularly hard after the CFTC approved perpetual Bitcoin futures last Friday.  Gains in healthcare were also pretty broad based with insurers and medtech devices leading after earnings (MDT/COO/HUM) and some analyst upgrades.

Outside of the tech heavy sectors materials also ended the week lower with metals, ag chemicals and packaging stocks under pressure. 

Checking in on the charts. The S&P 500 broke below the 20d ma (~7,480) today, for the first time since reclaiming that level in early April. The mid-May pullback low is ~7,330 while the 50d ma is ~7,155.

The monthly payroll report headlined this week's data. The numbers came in hot, doubling the consensus estimate while the prior two months saw upward revisions totaling 93K. With last month’s revision, the past three payroll gains have been a robust 214K, 179K and 172K.

The unemployment and participation rates held steady at 4.3% and 61.8%, respectively. The biggest areas of job growth were Leisure and Hospitality (70K), local government, surprisingly, (55K) and Health Care (35K). Areas of losses included Finance (-22K). Yields jumped after the print. After sluggish and volatile years in 2024 and 2025, the NFP data has returned to the levels consistently seen in 2023.  

In other labor market data, the JOLTS report showed an increase in job openings, with most of the increase from professional and business services. However, hiring and the quite rate fell- the later hitting the lowest level since August 2020. Layoffs and discharges also fell and remain at very low levels. The ADP Employment came in strong showing 122k jobs added to the economy with Chief Economist Nela Richardson saying, “Hiring was more broad-based in May than we’ve seen in the last few years.” Weekly initial jobless claims rose from last week’s 215K to 225K and reached their highest level since early February, but the period includes the Memorial Day holiday, which could have skewed things. Continuing claims, however, fell slightly from last week. Challenger Job Cuts rose to 97K, up from last month’s 83K. It was the highest May total since 2020- the teeth of the pandemic.

The totality of the labor data this week shows a market without signs of stress, pointing to a healthy economy overall and allowing the Fed to focus more and more on the inflation mandate.  

ISM Manufacturing PMI accelerated from last month and beat estimates (54.0 vs 53.0), reaching its highest lelel since May 2022. New Orders rose while Prices ticked down but remains very elevated. Commentary included the negative impact of the Iran war on oil prices (and prices in general), uncertainly and supply chains.

After spending 2023-2025 in the contractionary area (<50) of the survey, the overall index has lived consistently in expansion this year.

In construction spending data, annualized data center construction spend, on a steep climb for several years if you haven't heard, rose above $50B for the first time ever.

Economic activity increased at a slight to moderate pace for 10/12 Federal Reserve Districts according to this afternoon’s Fed’s Beige Book release. That’s a little better than the 8/12 showing in the last update. The report also showed rising stress for consumers from ever-higher prices.

Fed Chair Kevin Warsh sent a memo promising to review Fed strategies and hired conservative analysts Paul Winfree, who authored the Federal Reserve section of the Project 2025 blueprint - a broad, conservative policy agenda- and Daniel Heil to assist with this. Among the recommendations Winfree has made: eliminate the dual mandate and re-orient to protect the Dollar and restrain inflation, wind down the Fed's balance sheet to pre-GFC levels, and stop paying interest on reserves and return to open-market operations to control reserve levels and rates.

US treasury yields ended the week sharply higher but most of the move was on the heels of Friday's jump after the hot jobs report. The 2y rose over 15bp, with over 10bp of that on Friday. The curve bear flattened as the 10y rose only 10bp and 30y 3bp. Global yields ended the week higher with Japan's moves more modest than in the US and Europe.  

The Dollar gained on the major crosses, pushing the ICE US Dollar Index back above 100 with a big move on Friday and completely filling the gap down on the 4/8 ceasefire.

Global Equities - Mixed performance around the globe. Sharp pullbacks in Asia, semis to end of the week.

Perhaps a Knicks championship. It's a relatively light week for US data, but inflation updates will the focus with the CPI and PPI releases. The ECB rate decision will be the focal point for central bank activity (a hike is expected), along with a decision from the Bank of Canada. The Fed goes into its blackout period starting this weekend. Oracle will headline the earnings reports, in addition to Smuckers, Lennar, Adobe and Vail among others. There will also be a few broker conferences to keep an eye on for corporate news. Go Knicks!  

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