Categories:
Key areas of focus
- Last week’s macro calendar offered a fresh read on the labor market. This week, the focus will be on the Fed's other mandate: inflation. Fresh CPI and PPI prints will reveal how the energy crisis is flowing through to prices, while retail sales, existing home sales, business inventories, and industrial production offer a broader read on economic momentum heading into mid-year.
- The S&P 500 and NASDAQ extended their winning streaks to six consecutive weeks. A U.S. large-cap growth index outperformed its value counterpart for the fifth time in six weeks chipping away at value's year-to-date advantage. The latest surge in oil prices on Monday reignited inflation concerns, driving the 10-year Treasury yield to 4.45%. This was the highest level since late March before settling back down to 4.38% on Friday.
- Consumer sentiment extended its recent decline, with the University of Michigan's preliminary May reading falling to 48.2. This is the lowest level on record dating back to 1952 and well below the February peak of 56.6. The reading further emphasizes the growing disconnect between market optimism and household confidence.
Week in review
Last week offered further insights into the labor market as investors continued positioning around an extended US-Iran ceasefire, a lingering energy crisis, and still-solid corporate earnings. Factory orders surged 1.5% on Monday, the strongest gain since late 2025, driven by AI-related capital goods. However, stocks finished lower as Brent crude jumped 6% amid Strait of Hormuz disruptions. On Tuesday, the ISM Services PMI remained in expansion territory, signaling continued growth despite slower goods demand. By Wednesday, the tone shifted meaningfully as US-Iran deescalation hopes pushed oil below $100/bbl, lifting both stocks and bonds. Labor data painted a picture of gradual cooling without sharp deterioration. JOLTS job openings slipped to 8.4 million, ADP printed just 90K versus 125K expected, and claims ticked up but stayed historically low. Friday's April payrolls beat expectations at 115K, but the real surprise was consumer sentiment, which dropped to 48.2, the lowest reading in the University of Michigan survey's history. Notably, inflation expectations actually declined, suggesting the weakness may have been fueled by other factors beyond just gasoline prices.
Spotlight
First quarter earnings season has been exceptionally strong, coming in well above an already elevated bar. With 89% of S&P 500 companies having reported, 84% beat EPS estimates, above both the five-year average of 78% and the ten-year average of 75%. The frequency of misses has also dropped to its lowest level in 25 years outside the COVID reopening period. Meanwhile, the AI capex boom shows no sign of slowing. Analyst estimates for 2026 hyperscaler spending now total $751 billion, up $80 billion since the start of earnings season and 83% above 2025 levels. Adoption is broadening, with Goldman Sachs research noting that nearly 20% of firms are now integrating AI into regular operations, up 0.9 percentage points from March. Perhaps the most notable signal came from Thursday's productivity data. Nonfarm productivity rose 0.8% in 1Q26, lifting the year-over-year pace to 2.9%, while unit labor costs increased less than expected to 2.3%. When productivity goes up and labor costs go down, corporate margins typically go up, which is supportive of equities.
Markets
Sectors
Style & Market Cap
Sources
1. Factory Orders
United States Census Bureau, Monthly Full Report on Manufacturers’ Shipments, Inventories, & Orders, retrieved from U.S. Census, https://www.census.gov/manufacturing/m3/current/index.html
2. ISM Services
Institute for Supply Management, Institute for Supply Management (ISM) Purchasing Managers Index (PMI) Services Report, retrieved from ISM, https://www.ismworld.org/supply-management-news-and-reports/reports/ism-pmi-reports/services/march/
3. JOLTS Report
U.S. Bureau of Labor Statistics, Job Openings and Labor Turnover Survey, retrieved from U.S. Bureau of Labor Statistics; https://www.bls.gov/jlt/
4. ADP Report
ADP Research, ADP National Employment Report, retrieved from ADP, https://adpemploymentreport.com/
5. Jobless Claims
U.S. Department of Labor, Unemployment Insurance Weekly Claims, retrieved from U.S. Department of Labor; https://www.dol.gov/ui/data.pdf
6. Jobs Report
U.S. Bureau of Labor Statistics, Employment Situation Summary, retrieved from U.S. Bureau of Labor Statistics; https://www.bls.gov/news.release/empsit.nr0.htm
7. Consumer Sentiment
Surveys of Consumers, University of Michigan Consumer Sentiment Index Summary, retrieved from University of Michigan, https://www.sca.isr.umich.edu/
8. FactSet Earnings
FactSet Earnings Insight, retrieved from FactSet, https://insight.factset.com/topic/earnings
Market Data
Morningstar Direct using Morningstar Indices
Authors:
Anthony Silva, CFA®
Senior Director of Strategy Management
World Investment Advisors, LLC