RECAPPING LAST WEEK
After dipping early in the week, pressured by rising yields and the imminent possibility of renewed
military conflict with Iran, US equity indices reversed course by midweek and ended up either just
beneath (S&P 500), at (Nasdaq 100), or above all time highs (DJIA.) Nvidia, the bluest of the blue–
chip chipmakers, announced earnings and revenues that once again beat street estimates, yet the
stock and broader market barely responded. Increased spending by U.S. hyperscalers more than
made up for CEO Jensen Huang conceding the Chinese AI chip market, their market share having
fallen from 90% to zero. Thursday the U.S announced that it would be investing $2B in quantum
computing–related stocks. A billion of that is going to IBM, which is up over 15% since the
announcement, and the smaller pure–play quantum stocks that will be receiving the remaining
funds (Global Foundries–GFS, D–Wave Quantum–QBTS, Rigetti Computing–RGTI, and Infleqtion–
INFQ) rallied as much as 50% on the news. S&P500 sector performance reflected a broadening
but defensive–leaning rally, with utilities and health care seeing the largest gains for the week,
followed by real estate, while technology remained supported by AI and semiconductors. U.S.
Treasuries were the key macro pressure point, with 10–year Treasury yields reaching their highest
levels since January 2025 and the 30–year touching their highest level since 2007. Inflation worries,
energy–price risk, and a less–dovish Fed path weighed on duration, yet by end of week, yields had
returned to last week’s closing levels. Fed funds futures now indicate a mere 32% probability of
rates remaining where they are at year end, a 42% probability of a quarter point hike, with chances
for rates being 50 or 75 basis points higher comprising the remaining possibilities. After moving
decisively higher against most major currencies the prior week, the U.S. dollar consolidated in a
fairly tight range. Even a report showing Japanese core inflation running at 4–year lows wasn’t
sufficient to push USD/JPY out of the 159 range where it meandered all week. Crude oil spent the
week gyrating around $100 before peaking north of $105 ahead of President Trump calling off a
planned Tuesday attack against Iran, citing his optimism over ongoing “serious negotiations.” The
July contract settled near two–week lows at $96.60. Precious metal and crypto markets rounded
out the theme of a quiet pre–holiday week whereby in the absence of catalysts, consolidation ruled
the week.
THE WEEK AHEAD
The last week of May sees a holiday shortened week, with not only U.S. markets closed Monday for
Memorial Day but UK markets (Spring Bank Holiday) and continental European markets (Whit
Monday) as well. Attention will likely shift from earnings momentum to macroeconomic validation,
with markets watching the equity rally for challenges posed by elevated yields and oil–linked
inflation. The global economic calendar remains pretty light, with inflation related economic
releases attracting the most attention. Australian CPI is released Tuesday, with expectations of a
hot year–over–year reading of 4.4%. Thursday sees the release of the U.S. Personal Consumption
Expenditures index–any mention of which one is seemingly obligated to state “the Fed’s preferred
inflation gauge.” A distinct way in which the PCE differs from CPI is that it accounts for consumer
substitution of goods rather than using a fixed basket of goods. Hence, when inflation is rising, as
is now, driven by energy prices, consumers adjusting their spending by “trading down” in other
areas is something that PCE can capture that CPI does not. So, expectations are for the core PCE
numbers to come in at a relatively benign 0.3% month over month and 3.5% year over year. New
home sales, which arrive Thursday, will provide a key rate–sensitivity check for the sector. A
handful of tech companies report on Wednesday; Marvell Technologies (MRVL), Salesforce (CRM),
Snowflake (SNOW), Synopsis (SNPS), and HP (HPQ), with Dell (DELL) rounding out earnings
season on Thursday along with retail giant Costco (COST.)
(Schwab)
