Market Story Lines
Hello, I'm Eric Criscuolo, Market Strategist at the New York Stock Exchange, and this is Market Storylines. Every week we’re here to keep you up to date on the key trends and events driving global markets. We’re recording this on Thursday May 14th. Now let’s dive in.
Last week the S&P 500 extended its winning streak to 6 weeks and hit 7400, and in doing so overtook the equal-weight index in year-to-date gains for the first time this year. That last fact showcases how the mega-cap tech and AI trade has come roaring back to propel equities to record highs despite all the geopolitical headwinds. Last week Michael highlighted the freight train that the semiconductor stocks have become when he paraphrased the late, great Yankee announcer John Sterling’s signature call at the end of Yankee wins, which have unfortunately stopped happening over the past two weeks.
This week started with Mother’s Day on Sunday, and my flower order not showing up at my Mom’s house. That was an ominous sign. Then came President Trump characterizing the Iran ceasefire as being on life support and called Iran’s response to the US proposal to end the war “totally unacceptable.” However, beyond that, it was relatively quiet week on the Iran front.
With no escalation in that part of the world, President Trump’s highly anticipated two-day summit with Chinese President Xi Jinping was free to take center stage.
Not surprisingly, much of the focus of the initial meeting was on trade, including access to the Chinese markets and purchases of American agricultural products. The White House also said that Xi agreed that the Strait of Hormuz should remain free to transit, and that Iran should not have a nuclear weapon. Xi was also blunt when he spoke of Taiwan, saying the US needed to move with extreme caution on that topic.
The key economic releases this week revolved around inflation data. The PPI generated the most discussion as the print was well ahead of expectations and saw the largest increase since early 2022. Excluding energy, prices still saw sharp increases. Services accounted for much of the gains, driven by Trade Services. This is a measure of retailer and wholesaler margins and it accounted for about 40% of the increase. Transportation and Warehousing also saw a sharp increase. The Consumer Price Index was the other major data release and it usually attracts more attention than the PPI. However it was broadly inline, maybe a touch hot, and so reactions to it were more muted. The takeaway from the two reports is that inflation is broader than just direct energy prices, and that is shifting expectations for the Fed. The market is now pricing about a 40% chance that Fed is hiking rates by the end of the year. There was basically a zero percent chance of that a month ago. In more Fed news, Kevin Warsh was confirmed by the Senate as the next Fed Chair and will officially take that role Friday when Jerome Powell’s term ends- though Powell will remain as a Fed governor for some time.
As we record this the S&P 500 is up over 1% this week and has reached a new milestone, trading above 7500. Extending the winning streak to 7 weeks looks more likely that not. However, we’re coming back to a familiar pattern as the headline strength is masking more muted performance below the surface. Like last week the S&P equal weight is lagging, by almost 2% this week. Small and mid-caps are seeing similar sluggish performance.
The Energy sector is up the most this week but it’s the mega cap tech stocks that are carrying the index to new heights. The NYSE Semiconductor index, the NYSE 100 index and the DRAM memory ETF are all up 1-2% this week. The Long Hardware/Short Software trade is also working this week with most software names lower, though cybersecurity stocks are an exception.
Outside of Energy and Tech, Healthcare is finally seeing a bounce- a sector that has been a significant underperformer. Whether it’s just a temporary move or something more sustained remains to be seen. It’s interesting that Consumer Staples- a more defensive sector than Healthcare- is also among the leading sectors this week. The big box retailers are higher, but tobacco names are up sharply. That’s not what you would usually see as leadership in a bull market.
Only two sectors are materially lower: Consumer Discretionary and Real Estate. Discretionary is seeing broad-based weakness. REIT weakness is concentrated in the specialized names, including wireless tower REITS.
Much is being made of the weak breadth metrics for equities. On Wednesday, when the S&P 500 set another all-time high, only 173 stocks saw gains, while 328 fell. Only 40% of S&P stocks are above their 20-day moving average. Only about half are above their 200d moving average. The record levels are coming with less stocks pushing higher. Two ways you could look at that: for you permabears, the market is fragile and if the momentum in those few names stops, the bottom falls out. For all you Bulls, there’s room for rotation out of those strong names and into the lagging ones to drive the next leg higher. The degree to which investors have been under-allocated in general, and especially to the really high-flying names, is also helping sustain markets as these investors are forced to chase at prices that keep getting away from them.
Outside of the breadth discussion, it’s also notable that equities have been able to continue to hit new records despite energy and yields both continuing to climb higher. Brent crude is up another 5% currently, as is US natural gas, whose year-to-date weakness has served as a buffer with everything else mooning in price. Meanwhile treasury yields have also climbed again, up about 10bp for the week.
Moving along the commodity complex, metals are mixed this week. Gold is down modestly. Copper is higher, trading at a record high. Crypto saw gains this week, with Bitcoin up modestly and trading on either side of 80k for the past week. The CLARITY Act, a key piece of digital asset legislation, was passed by the Senate Banking Committee and will head to the Senate floor for a full vote.
Looking ahead, tomorrow, May 15, is an options expiration. Next week Nvidia will highlight the earnings reports and look to continue the AI trade, but we’ll also get some big retailers reporting as well, including Home Depot, Lowe’s, Target, TJX, Burlington and Wal-Mart.
On the macro side of things it will be a relatively quiet week. The minutes from the last FOMC meeting will generate some buzz, especially with an incoming new Fed Chair and the growing calls for greater emphasis on the inflation side of the mandate. Flash PMIs will highlight the economic releases, along with Pending Home Sales and Housing Starts. Lastly, the Knicks will find out who they will play against in the Eastern Conference Finals.
That’s a wrap for this week. You can watch Market Storylines on TV.NYSE.com or on the NYSE YouTube Channel. You can also listen on the Inside the ICE House Podcast feed. Thanks for joining me. I’m Eric Criscuolo. We’ll see ya next week.