Last Week
The stock market marched to new record highs as a barrage of strong earnings reports from Big Tech firms outweighed a hawkish and divided Federal Reserve policy decision, a spike in oil prices, and continued uncertainty around the path to peace in the Middle East. The S&P 500, the Nasdaq Composite, and the Russell 2000 all gained approximately 1%, with the Oil&Gas sector topping the leaderboard with a 4.7% jump. Advancing issues barely outnumbered declining issues, but only the Basic Materials sector finished in the red.
The blended earnings growth rate for the S&P 500 in the quarter skyrocketed to 27.1% from 15% the week earlier, marking the highest year-over-year earnings growth rate since the pandemic rebound in the fourth quarter of 2021. It is worth noting that the surge came from Alphabet, Amazon.com, and Meta Platforms, and included significant non-operating income. Alphabet’s earnings included a net gain of $37.7 billion primarily due to net unrealized gains on non-marketable equity securities. Amazon.com included pre-tax gains of $16.8 billion in non-operating income from investments in Anthropic. Additionally, Meta Platforms included an $8.03 billion income tax benefit. Nevertheless, earnings across the board have been strong, with 84% of companies reporting results that exceed expectations.
As expected, the Federal Reserve kept its policy rate unchanged at 3.50%-3.75% for a third straight meeting. Chairman Powell suggested that the uncertainty over the economic outlook clouded guidance for monetary policy for the rest of 2026. There was an unusual split in the voting during the gathering, which saw four dissenting votes, the highest level of dissent since 1992. Incoming Chairman Kevin Warsh has suggested that short-term rates are too high and that the Fed’s balance sheet needs to shrink. In the words of Bob Dylan, “there’s too much confusion, I can’t get no relief”. There was little reaction in the bond market, as the yield on the 10-year Treasury inched up 7 basis points to 4.38%. The Dollar was steady, and Gold dropped almost $100 to $4629 per ounce.
As best we can tell, despite a multitude of conflicting tweets, threads, and statements, there appeared to be no progress in peace negotiations between the United States and Iran. The Strait of Hormuz remained both blockaded by the U.S. and closed by Iran. Oil prices were volatile, finishing sharply higher and over $100 a barrel. Furthermore, the United Arab Emirates announced its exit from OPEC+ following a strategic review of its energy policy and a need for greater flexibility in managing oil production.
Looks like we might have a good summer of baseball in Chicago, as the Cubs have won 11 consecutive home games, and the White Sox are showing signs of life in the weak AL Central.
This Week
Earnings season reaches its final innings, with reports from Palantir Technologies, Advanced Micro Devices, Walt Disney, and McDonald’s on deck.
The key economic data release will be Friday’s nonfarm payrolls report. Any surprise, whether hot or cold, could influence monetary policy and affect financial markets.
Developments in the war could outweigh everything else, or the status quo may remain in place. The markets were under downward pressure Monday morning following a report by Iran’s news agency that claimed two missiles hit an American patrol boat. US sources refuted that report, and the markets recovered most of the early losses. So much confusion: “So let’s not talk falsely now, the hour is getting late.”
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