Stocks Advance on Strong Earnings; Bonds Fall as Interest Rates Rise
Good morning,
The Dow (+0.5%), NASDAQ (+1.1%), S&P 500 (+0.9%) and EAFE (+1.0%) all exhibited modest gains for the week. Conversely, taxable bonds fell 0.4% and tax-free municipal bonds lost 0.3%. The 10-year Treasury yield rose 0.08% to finish the week at 4.38%. For the month of April, stocks gained nearly 10%, exhibiting their largest gains since 2020, more than wiping out losses from March, and hitting new all-time highs.
We had a very interesting week in the AI sector. Early in the week, Open AI disclosed that its revenue did not meet expectations, driving the Magnificent 7 (Mag 7) stocks sharply downward, but also in advance of four of those companies reporting their earnings. Their earnings reports each significantly beat expectations, but Meta dropped about 10% while Google rose about 10% based on their respective outlooks. As noted in last week’s recap, the top 5 companies represent 90% of the S&P 500 earnings, and those top 5 are all in the AI space and part of the Mag 7 group. Corporate earnings have continued to pour in, and have generally been good and have outperformed expectations.
In other economic news, Gross Domestic Product (GDP – the most prominent measure of the US economy) came in at a 2% growth rate, which is neither strong nor weak. Consumer spending fell from the prior month, but still a 1.6% growth rate over the prior month demonstrates that consumers continue to spend, which is the backbone of the US economy. The Fed-favored inflation gauge, Personal Consumption Expenditures (PCE) came in at 3.5%, in line with expectations, but well above the Fed’s target of 2%. Lastly, the Fed met last week as Chairman Powell’s last meeting as the Fed Chairman, and they left interest rates unchanged. The bond market is now pricing in no interest rate cuts or hikes for the remainder of 2026, given the uncertainty of inflation, as oil prices remain elevated as a result of the closure of the Strait of Hormuz.
On a separate note, and as shown by the chart below, the US national debt has risen above 100% of GDP for the first time since World War II. This has been a very quiet ticking time bomb that eventually needs to be addressed by Congress. In short, the US government cannot continue to spend way more than it takes in from tax revenue, and that needs to be handled in either or a combination of two ways – reduce spending or increase revenue (i.e. – taxes). I’ve been saying this for years, and it has really gotten out of control since COVID, and will eventually need to be addressed by our government.
Have a great day and terrific week, and we wish to take a moment to wish all the moms a Happy Mother’s Day on Sunday to a well-deserved group of wonderful women!
Source: Yahoo Finance
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The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
