What we learned last week:
“Why didn’t you say that in the first place? That’s a horse of a different color!” –Wizard of Oz (1939)
A down week in the markets isn’t unusual. Look no further than the month of March this year. In the short-term markets are an expectation machine.
The three prominent expectations feeding market narrative showed different colors last week. First narrative; the war in Iran will be resolved and the cost of energy, oil prices, will come down. A second, the Federal Reserve led by its new Chairman will cut rates due to a weakening labor market.
As talks for a cease fire and the Strait of Hormuz between the U.S. and Iran weaken and events in the middle east turn kinetic, oil prices moved higher last week. Raising concerns over higher inflation for longer. Additionally, last week’s hot jobs report raised expectations for rate increases from the Fed, not cuts like the market began the year anticipating.
Friday’s May jobs reports showed payroll growth of 172,000, smashing the expected number of 88,000 and catching investors off guard whose previous strategies were aligned with a weakening labor market story.
Last week wasn’t all about a shift in expectations in the economy. The week wouldn’t be complete without an AI story.
Led by tech, the Dow closed Thursday at all-time highs as investors rotated away from the tech fueled rally of the past nine weeks. Broadcom, a semiconductor designer and developer playing prominently in the build out of AI infrastructure, reported healthy earnings growth and future growth guidance – however it failed to meet investors’ high expectations.
According to JPMorgan among the AI ‘hyperscalers’ (large data centers facilitating volumes of compute and data) spending is projected to hit $700 billion this year. Friday the Nasdaq, S&P 500 and Dow ended down a respective 4.2%, 2.6% and 1.4% as concerns over AI spending levels, middle east uncertainty, and a labor market that may not support rate cuts painted a very different picture than the one presented over the last nine weeks.
Turning to this week, interest rates will remain front as center inflation data adds color to markets and investors’ expectations for the future. Of course, oil prices driven by events in Iran and AI headlines will also continue to paint the evolving picture for 2026.
What’s ahead this week:
Economic Events
- Inflation takes center stage as investors will be reacting to two reports
- CPI looking at consumer price changes
- PPI looking at producer price changes
- Initial jobless claims continue to be under the radar
Earnings
- AI cloud services company Oracle reports earnings
- Adobe, has so far missed the AI wave also reports
My goal is for you to feel educated and informed about variables we do and don’t have control over and find ourselves working within. I hope to do it in an informative and relatable way. As always, I value your relationship and planning objectives – my door is always open for conversation.
