U.S. equity markets rose for the sixth consecutive week as stronger-than-expected corporate earnings and hopes of a peace deal kept investors in a jovial mood. The S&P 500 ended the week up 2.4% while the Nasdaq finished up 4.5% for the week. As we enter the final innings of earnings season, earnings continue to improve with earnings now expected to rise 27.7% over the first quarter, which would be the strongest growth rate since the fourth quarter of 2021. Large-cap growth stocks resumed their leadership role, outperforming their value counterparts by a wide margin for the fifth of the past six weeks. Information technology surged over 7% last week, led by semiconductor companies, as another wave of AI enthusiasm and strong earnings growth lifted the sector higher. The energy sector hit the bottom of the S&P 500 leaderboard this week, sliding 5.3% on the back of declining oil prices. Utilities and financials followed suit as investors shifted capital away from defensive areas and into high-beta tech and growth stocks. International markets were up last week, led by Emerging Markets, which returned nearly 7%, driven by strength out of South Korea and Taiwan stocks.
Yields remained roughly in-line with where they finished last week, trading in tandem with oil prices, as the market repriced inflation expectations. The 10-year Treasury yield finished the week a basis point lower at 4.38%, while the 2-year Treasury yield rose slightly to 3.90%, resulting in a 2–10 spread of 48 basis points. The Bloomberg US Aggregate Index rose 0.26% for the week, while high-yield bonds gained 0.05%. Performance was positive across the quality and duration spectrum, especially on the longer end of the curve. Long-term corporate bonds were the best-performing segment, returning 0.69%. Investment-grade and high-yield corporate yields ended the week at 5.10% and 7.26%, respectively.
U.S. economic data for the week was light and did its best to draw little attention away from the surging AI optimism. U.S. factory orders in March rose 1.5%, well ahead of estimates and last month’s 0.3% gain, as new orders for goods rose for the fourth month out of the last five. The April ISM services index fell to 53.6 from 54.0, a slight dip as businesses still grew amid a more cautious backdrop. The ADP employment report showed the U.S. created 109,000 new jobs in April, well ahead of estimates and marked the biggest increase in 15 months. Nonfarm payrolls added 115,000 new jobs in April, topping consensus estimates and capping the strongest two-month period for nonfarm payroll increases since 2024. The unemployment rate remained at 4.3%; however, average hourly earnings growth was weaker than expected, the labor force participation rate dipped and the U-6 unemployment rate, which accounts for unemployed and underemployed workers, increased. The University of Michigan’s preliminary consumer sentiment index fell to 48.2 in May, its lowest reading on record, as higher gasoline prices and tariffs weigh on responses.