Global Equity Indexes Set Records: U.S. stocks pushed further into record territory on extraordinarily strong corporate earnings, upbeat employment data, and continued hopes for a peace agreement between the U.S. and Iran. The S&P 500 Index rose 2.3% for the week, lifting its year-to-date gain to 8.5%. Tech stocks pushed the S&P higher last week as semiconductor shares jumped on expectations of ongoing rapid growth in AI spending.

The MSCI EAFE (developed markets) Index advanced 1.1% for the week, bringing its year-to-date return to 7.6%. Meanwhile, the MSCI Emerging Markets Index surged 6.9%, raising its year-to-date return to 22.5%. Both Indexes reached record highs. Emerging-market returns were boosted by soaring prices of South Korean and Taiwanese technology stocks.

Interest Rates Edged Lower, Bond Indexes Positive: The yield on 10-year U.S. Treasury notes closed Friday at 4.35%, down 0.02% for the week. The Bloomberg Aggregate Bond Index rose 0.3%, while the Bloomberg U.S. Municipal Bond Index picked up 0.2%. This brought their year-to-date returns to 0.4% and 1.2%, respectively.

Labor Market Holding Firm: The Bureau of Labor Statistics (BLS) reported that nonfarm payrolls increased by 115,000 in April, well above the Bloomberg median forecast of 65,000. In addition, March payrolls were revised to 185,000 from 178,000 as previously reported. The unemployment rate in April held steady at 4.3%, while average hourly earnings increased 3.6% year-over-year, up from 3.4% in March.

Expansion Continues: The S&P Global U.S. Composite PMI for April—which measures activity in both the services and manufacturing sectors of the economy—ticked up to 51.7 from 50.3 in March. Index readings above 50 reflect expansionary conditions.

Stunning 1Q S&P 500 Earnings: As of May 8, nearly 90% of S&P 500 companies had reported first-quarter results, with an impressive 83% surpassing consensus expectations. Analysts tracked by I/B/E/S estimate 1Q S&P 500 earnings per share (EPS) growth at 28.6%, nearly double their estimate at the start of the reporting period in early April. S&P sectors exhibiting the strongest growth include Communication Services (54.8%), Technology (52.5%), Materials (41.4%) and Consumer Discretionary (39.3%).

The AI Boom: As of Friday, I/B/E/S analysts estimate full year S&P 500 EPS growth at 24%. This is an unusually high rate of growth coming off the S&P 500’s record-setting earnings in 2024-2025. Surging demand for AI services and the associated massive buildout of supporting infrastructure are largely responsible for the acceleration of the S&P’s earnings growth. The AI spending boom will undoubtedly slow at some point. However, spending budgets of the large “hyperscalers,” including Amazon, Alphabet, Meta and Microsoft, continue to climb. The war in the Middle East presents an ongoing threat to the economy, but the AI boom is providing a powerful counterforce to the stock market should a peace agreement prove elusive.

Inflation Up: The Bureau of Labor Statistics (BLS) will report April inflation data on Tuesday. The Bloomberg median forecast, measured year over year, calls for the Consumer Price Index (CPI) to jump to 3.7% from 3.3% in March. Core CPI, which excludes food and energy, is expected to increase to 2.7% from 2.3% in March. The uptick in both measures is largely attributable to supply disruptions and rising prices associated with the Middle East conflict.

Retail Sales Up: The Commerce Department will report April retail sales on Thursday. The Bloomberg median forecast, measured month over month, calls for a 0.6% increase. In March, retail sales increased by a surprisingly strong 1.7%, with higher gasoline prices a significant contributing factor.

Roger Khlopin, CFA
Chief Investment Officer

Aaron Nghiem, CFA, CIMA
Senior Portfolio Manager