Market Story Lines
Hello, I'm Michael Reinking, Senior Market Strategist at the NYSE, and this is Market Storylines. Every week we are here to keep you to date on the key trends and events driving global markets. We are recording on Thursday afternoon hours before the NFL draft. So let’s dive right in….
Last week Eric walked you through the historic rally that kicked off at the end of Q1 and pushed the S&P 500 to new all-time highs. An exclamation point was put on that rally last Friday after Iran’s foreign minister posted on social media that the Strait of Hormuz was open to commercial traffic during the ceasefire. This was later disavowed by other factions within Iran, but oil prices tumbled none the less with ICE Brent ending the day down ~10% at $90. There was a barrage of tweets from President Trump throughout the day, and the S&P 500 ended the session up >1% and higher by more than 3% for the third consecutive week.
Over the weekend the IRGC attacked multiple ships in the Strait and the US seized an Iranian flagged ship yet there was still some hope that another round of negotiations would take place in Pakistan this week. Despite the events of the weekend the pullback on Monday was shallow with most major US indices ending on either side of unchanged. There was a little more weakness on Tuesday after VP Vance didn’t board his plane to Pakistan and it looked like talks were dead ahead of the ceasefire deadline. However, shortly after the close President Trump indefinitely extended ceasefire giving the “fractured” Iranian government time to come back to the table. Which helped markets bounce back on Wednesday.
Despite all the back-and-forth headlines and escalating maritime tensions the S&P 500 had traded in less than a 1.5% range for the week and was essentially unchanged. However, around 1:00 this afternoon the headlines started to swirl again suggesting that Iranian moderates were being replaced in Parliament, reports air strikes in Lebanaon ahead of Israel negotiations and that air defense systems in Tehran have been activated though there are now reports suggesting this is just related to pro-regime marches which helped equities bounce back from the lows, I couldn’t make this up. This week has really been about consolidation which given the recent rally was long overdue. The strength is impressive especially as oil prices have moved back to ~105.
As we’ve been highlighting one of the reasons for that resilience has been corporate earnings and we are now in the heart of earnings season with >20% of companies in the S&P 500 reporting this week. If you missed it, we published our earnings preview last week, titled seeing through the smoke, which you can find on nyse.com along with all of our daily commentary. The financials were the first out of the gate last week as Eric highlighted the results were strong, there weren’t any major red flags in provisioning and management teams remained cautiously optimistic about the consumer and the economy despite the complex macro environment.
The earnings have continued to be strong this week with over 80% of companies beating estimates and Q1 earnings tracking up nearly 15% on a year-on-year basis. One of the notable themes has been the guidance gap with many companies beating earnings estimates but this not necessarily translating into guidance increases as management teams remain conservative. However, areas that are benefitting from the insatiable AI demand are putting up extraordinarily strong numbers along with guidance increases including semis, semi equipment stocks, memory and other companies levered to the data center and infrastructure build outs. The ICE Semiconductor index is up for 17 consecutive sessions and up just under 50% YTD. During the recent rally we’ve seen software companies bounce back but they are under pressure yet again. IBM is getting sold after strong numbers but getting punished for that guidance gap we just mentioned. Service Now is also getting throttled despite a beat and raise quarter as there are some concerns about margins and the delay of several large deals in the Middle East. The sector is down >5% today giving back all of this week’s gains. Airlines have been highlighting the strong demand and discussed reducing capacity and price increases to help weather the surging fuel costs. Airlines are not the only companies doing that this is also happening across other areas of transportation, building products, and chemical companies.
This week’s economic data continues to point to a resilient backdrop with retail sales coming in ahead of expectations, jobless claims remaining contained and both manufacturing and flash PMIs improving from last month. Yields have been moving higher throughout the week, reversing last week’s move lower, and starting to accelerate to the upside given this afternoon’s headlines with 2’s through 10’s up >10bps this week. Tuesday, Kevin Warsh began his confirmation hearings. Outside of being called a human sock puppet the proceedings were relatively uneventful. He highlighted the importance of Fed independence, discussed his perception of the institution’s mission creep, the idea of a new communication strategy and alternative measures of inflation.
Next week’s FOMC meeting could be Chair Powell’s swan song and there rate decision from ECB BOE and BOJ. Earnings will continue to be very busy including the mega-cap tech companies who will all be reporting on Wednesday evening.
That’s going to do it for this week thanks for spending some time with us. If you liked today’s episode, please tell a friend or leave a comment wherever you listen to your podcasts. I’m Michael Reinking and we’ll talk to you again next week.