Last Week
During the Vietnam War, Cat Steven’s wrote the optimistic tune “Peace Train”, suggesting that “something good has begun”. Wall Street has jumped on board that train, believing the party line that the framework to end the conflict with Iran and restore shipping through the Strait of Hormuz has been largely agreed upon. That belief, combined with a softer-than-expected inflation reading and strong corporate earnings reports, sent the equity markets to new heights. Tech stocks led the parade, with the Nasdaq Composite rising 2.4%, the S&P 500 rising 1.4%, and the Russell 2000 adding 1.7%. Crude Oil plummeted almost 10% to $87.36/barrel, leading to a 5.2% slide in the Oil & Gas sector stocks. Advancing issues outnumbered declining issues by a factor of 4-3, with a relatively stable Dollar and Gold, and the yield on the 10-year Treasury eased 11 basis points to 4.56%.
Investors seem willing to look past some troubling developments in the war and economy. The U.S. struck Iranian missile sites and boats laying mines on Monday, and as the week unfolded, no actual “deal” emerged. As for the economic data, the University of Michigan consumer sentiment index fell to 44.8, an all-time low; the softer-than-expected April inflation was still a three-year high, and first-quarter growth was revised down to 1.6%. Corporate profit reports, on the other hand, continued to show explosive growth, particularly in the Technology sector, leading to a spectacular 28.6% increase in S&P 500 profits in the first quarter. Small-cap earnings growth has also been exceptionally high, as companies lap the period when the disruption over “Liberation Day” punished business conditions.
On the Chicago Sports Scene, the Cubs snapped a punishing 10-game losing streak with a couple of wins over the Pirates. On the South Side, the White Sox are continuing to show improvement and remain in second place in the AL Central. It was Chicken Little who once cried that the Sky is falling, and unfortunately, that’s true in the WNBA, as Chicago’s team has dropped 4 games in a row.
This Week
Investors will be hoping that the Peace Train pulls into the station.
The state of the jobs market will be in focus on Friday, when the Bureau of Labor Statistics releases the May jobs report. Economists forecast an increase of 90,000 in nonfarm payrolls, following a 115,000 gain in April. The unemployment rate is expected to remain unchanged at 4.3%. Payrolls posted back-to-back monthly gains in March and April for the first time since last May. The health of the labor market has held up surprisingly well amid all the headline turmoil. If that continues, the case for lowering interest rates weakens, yet it will also reduce the chances of a recession.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvest.com.