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 May 21st with the long Memorial Day weekend coming into view. So let’s dive right in….
Last week Eric nearly jinxed the S&P 500 weekly winning streak. He highlighted that mega-cap tech and the AI trade had pushed the index to new highs closing over 7,500 on Thursday. However, technically there were some cracks beneath the surface as breadth was poor and defensive sectors like consumer staples were outperforming as oil prices and yields were hovering just below recent highs. The two big stories of the week were the hot inflation prints and President Trump’s trip to China. There were no major break throughs coming out of those meetings but in general the vibes were reasonably positive.
The two sides agreed that Iran should re-open the Strait and not have a nuclear weapon, though China later released a statement saying the US should never have started the war in the first place, while Trump feels China should be more involved in the resolution.
The two sides talked about the vision of new constructive relationship of strategic stability” though details were scant. President Trump was accompanied by a group US business leaders, including the President of the NYSE Lynn Martin. Upon his return he alluded to trade deals which will include Boeing planes, US energy and agriculture and beef though Peter Navaro tried to ease concerns about hamburger or steak shortages for BBQ’s this weekend. It wasn’t all back slaps though with Taiwan remaining a point of contention.
The positive vibes shifted on Friday. There wasn’t a particular headline to point to for the weakness but global yields moving sharply higher seemed to be the trigger, along with unsustainable nature of the recent rally particularly within the tech sector. Traders also seemed to be getting worried that with the China summit in the rear view the administration could refocus its attention on Iran with the potential for military action to restart.
Throughout the week we had highlighted that yields were sitting just below recent highs and at key technical levels and the move on Friday seemed to be the straw that broke the camel’s back or like Ernest Hemingway said of “Gradually, then suddenly”. Treasury yields were up 5-10bps on Friday and 20-25bps for the week while the move in global yields was even more significant. Major US indices closed down between 1-2% on Friday including a 4% drawdown in the NYSE Semiconductor index. The S&P 500 fell just over 1% but ended the week up a tenth of a percent outperforming small and midcap indices which were down 2.5% - 3%.
By recent standards this week has been a light quieter. We remain in the fog of war with conflicting headlines still creating some volatility. Friday’s weakness carried through to futures on Sunday night with S&P futures down over 1% at the lows but equities recouped a good portion of those losses late in the day as President Trump said he postponed a US attack on Iran at the request of Middle East leaders due to “serious negotiations”.
Markets were back under pressure again on Tuesday as he warned that the pause was temporary and threatened another “big hit”. To start the week the tech leadership had been under significant pressure but on Tuesday afternoon many of the semi/memory stocks reversed sharply as the buy the dip crowd emerged, which was a foreshadowing of the historic fourth quarter comeback by the Knicks later that evening. The trading floor was buzzing on Wednesday after that win, and equities extended to the upside after President Trump suggested a deal was close. The headlines don’t stop and just before I came on there are press reports that a final draft for an agreement had been reached but this has not yet been confirmed.
Markets are moving to the upside again recouping earlier losses. For the week major US indices are sitting on gains though the S&P 500 winning streak is still in question with the index up ~0.5% as we’re filming. The last time the S&P 500 closed up for 8 consecutive weeks was in 2023. Yields are a touch lower then where we closed last Friday, having pulled back significantly from the Tuesday’s high, which has helped the equal weight version of the S&P 500 and small and midcap indices outperform modestly.
As we’re through the heart of earnings season the pace of releases has slowed dramatically this week though we are now in the late cycle tech and retail earnings. In general, the retail results have been solid but management teams have acknowledged that rising gas prices and the cumulative effect of sticky inflation is hurting the low-income consumer. The stock reactions have been mixed as they have taken a cautious approach with guidance. The late cycle tech earnings have also been very strong including Nvidia which showed revenues up 85% y/y to over $80B in the quarter, it is hard to argue with that. That being said, the stock is slightly lower today after having rallied >30% from the March lows ahead of the print.
Also a light economic calendar this week. ADP and claims continue to point to a resilient labor market despite a steady stream of layoff announcements from corporates. Today’s S&P Global flash PMIs were mixed. Manufacturing improved jumping to 55.3 but S&P warns that part of this was driven by inventory building as companies try to get ahead of higher prices. The services PMIs ticked slightly lower. Employment components weakened and not surprisingly prices rose at the highest rates since 2022.
Tonight’s Knicks Game and Middle East headlines will set the tone for Friday’s trading ahead of the long weekend otherwise the calendar is sparse. US markets are closed on Monday. The rest of the week will be similar to this one with late cycle/tech and retail earnings in focus. The main economic data comes out on Thursday including personal income/spending, PCE and durable goods orders. That’s going to do it for this week enjoy the holiday weekend and hopefully the weather forecast improves.
Remember you can watch Market Storylines on TV.NYSE.com or on the NYSE YouTube Channel or listen on the Inside the ICE House Podcast feed. Thanks for joining me. I’m Michael Reinking. We’ll see ya next week. Let’s go Knicks.