RECAPPING LAST WEEK
With the exception of the Nasdaq–100’s 2% pop. U.S equity markets were mostly flat, with no
other index moving even 1%. We would expect to see some consolidation after the multi–week
April rally, with the S&P500 up nearly 12% from its March 30 low. While Nasdaq stars the
Magnificent 7, and shared in the sector’s gains, they were not driving outperformance. Instead,
semiconductor strength carried the tape, helped by Intel’s strong revenue outlook and a broader
chip rally. Oil remained central to the macro narrative, with WTI crude rallying 12%. While oil
eased Friday on hopes for renewed U.S.–Iran diplomacy, Middle East supply concerns related to
the Strait of Hormuz chokepoint have kept prices elevated. Interest rate yields drifted higher and
expectations for Fed rate cuts continued to fade as observers recognize that the Fed faces a
complicated path navigating higher oil prices and geopolitical risk. March retail sales surged
1.7%, their best monthly change in more than a year, signaling that higher gas prices have not yet
led the American consumer to cut their discretionary spending. Housing demand aligned with
retail spend, with pending home sales 1.5% higher despite rising mortgage rates. Manufacturing
and services PMI registered expansion above 50, pushing the S&P Global Composite PMI to 52.
Jobless claims ticked up to 214K—not high enough to stoke additional labor market concerns.
Consumer sentiment fell near the bear–market lows of 2022, even as equities today are registering
new record highs. The preceding numbers still reflect a great deal of uncertainty, both from the
ongoing war in Iran and from the incoming Fed Chair Kevin Warsh. His “regime change” testimony
in front of the senate last week has caused concern about future policy direction. As has been the
case since the start of the war, global markets looked fragile compared to the U.S. The German
flash composite PMI fell to 48.3 and the sinking IFO Business Climate Index indicated the
direction of corporate sentiment. Consumer sentiment in the eurozone dropped to a 3–year low.
In the U.K., unemployment rose to 5.2% as CPI rose to 3.3%, reminding investors that inflation is
omnipresent. Japan’s core inflation accelerated to 1.8%, as businesses reported the fastest–ever
recorded increase in selling prices, and manufacturing activity started to slow. Australian PMIs
crossed back into expansion, but here too, inflation surged to a 4–year high.
THE WEEK AHEAD
The chief macro event risk at the moment relates to the Fed—the impact of this week’s meeting
will likely come more from the statement and press conference than the rate decision itself. Will
policymakers emphasize sticky inflation, oil–driven price risk, still–resilient growth, or any opening
for future rate cuts? Despite rising yields, firmer energy prices, and a steady drumbeat of
headline risk, equity indices managed to keep rolling higher last week. Still, their Sisyphean climb
is slowing as each policy post and diplomatic flare–up adds a few pebbles’ weight to the boulder.
On the domestic front, labor market data and forward–looking metrics from retail sales and PMIs
will help assess whether growth remains resilient or if any knock–on effects from spiking energy
costs are filtering through. Thursday features the Fed’s preferred metric for inflation, core PCE.
Advance GDP q/q, and weekly unemployment claims arrive as well. On the earnings front, mega–
cap technology earnings will be the equity–market stress test: Microsoft, Alphabet, Amazon, Meta,
and Apple are expected to report, providing investors with a direct referendum on AI capex, cloud
demand, margins, and whether these stocks’ index leadership can continue. Internationally, global
central banks meet this week with Japan, Canada, and the U.K. all making rate statements and
Wednesday morning a release of EUR M3 money supply. Keep an eye on European data to see if
their sluggish activity continues, and more importantly how the ECB reacts to it. It will all be
greatly impacted by what happens in Iran, the Strait of Hormuz, and energy prices.
(Schwab)
