Markets Closed Mostly Lower Last Week After Weeks Of Soaring Gains, NVIDIA Earnings On Deck This WeekThe major indexes closed lower on Friday and mostly lower for the week, with only the S&P 500 eking out a tiny weekly gain. After soaring gains over the last several weeks, driven in large part by another better-than-expected earnings season, particularly by big-tech and AI-related names, stocks were due for a bit of profit taking. And we finally saw some of that. Last week's hotter-than-expected Producer Price Index (PPI) wholesale inflation report didn't help matters, as it pushes out the timeline for a rate cut. Even though Kevin Warsh was confirmed by the Senate last week to succeed Jerome Powell as Fed Chairman, whose term ended on May 15th, it's not likely that a rate cut will be coming anytime soon. In addition to higher inflation (much of it attributed to higher energy prices due to the Middle East conflict and traffic disruption in the Strait of Hormuz), the stronger-than-expected jobs report the previous week also suggests the economy doesn't need an immediate intervention. (The Fed began focusing on the labor market previously as they had begun downplaying the risk of rising inflation, and saw the potential for a weakening labor market as the bigger threat. But now, that seems to have reversed, with inflation becoming a chief concern, once again, while the jobs market ticks higher.) But Mr. Warsh is expected to champion a rate cut, eventually. And the Fed's latest Summary of Economic Projections (SEP), which was released in March and preceded Mr. Warsh (it comes out four times a year at the end of every quarter), does still forecast one 25 basis point rate cut this year, and another one next year. So, we shall see. The next 2-day Fed meeting will be on June 16-17, with Kevin Warsh at the helm. And it will include a new SEP. Earnings season has been the chief driver of recent gains. While earnings season begins winding down this week with 'only' 504 companies on deck to report, it will go out with a bang when AI-juggernaut Nvidia reports earnings on Wednesday (after the close), along with Analog Devices (before the open). The markets will also be watching developments in the Middle East. Iran has yet to sign a long-term peace deal with the U.S. And President Trump has said "the ceasefire is on massive life support," and gave it a "1% chance" of surviving. In other news, Friday's Empire State Manufacturing Index improved to 19.6 vs. last month's 11.0 and views for 7.8. And Industrial Production rose 0.7% m/m vs. last month's -0.3% and estimates for 0.2%. Manufacturing Output rose 0.6% vs. last month's 0.1% and forecast for the same. And the Capacity Utilization Rate came in at 76.1% vs. last month's 75.7% pace and outlook for 75.8%. The 7-week winning streak came to an end for the small-cap Russell 2000 last week, and so did the 6-week winning streak for the Nasdaq. (Although, the S&P 500 managed to extend theirs to 7 up weeks.) We'll see if the market can consolidate recent moves this week. Regardless, I'm expecting the next up move to begin shortly. And I'm expecting another double-digit gain again this year (actually 20% or more), which would make it the fourth year in a row of double-digit gains, and put the current AI boom on track to mirror the dot-com boom back in 1995-1999, when the S&P was up 5 years in a row with double-digit gains. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research |
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