Bond yields surged to end last week as concerns over energy-driven inflation and a looming deadline for Iran rattled debt markets. The benchmark 10-year Treasury note jumped to nearly 4.6% after a month-long selloff in government debt, while the 30-year Treasury bond climbed above 5%. These moves come as oil prices remain stuck above $100 a barrel with no end in sight to the conflict in Iran.
The market paradox
Despite the volatility in bonds, equity markets have remained resilient, with the S&P 500 up more than 17% from its March lows. Investors are currently weighing a divided outlook: corporate profits are on track to be 28% higher than a year ago, yet producer prices saw their largest gain in four years this April. Analysts warn that while Treasury markets are pricing in inflation risk, stock valuations may not yet reflect the impact of a prolonged shutdown of the Strait of Hormuz.
The K-shaped divide. Spending patterns are highlighting a split in the domestic economy. While low-income Americans have cut gas usage to manage budgets, high-income consumers have not changed their consumption. This continued spending from the top 10% of households, who own 87.2% of the stock market, has kept many companies afloat despite a crash in overall consumer confidence.
The AI cushion
Technology stocks continue to serve as the primary engine for market gains, driven by massive investments in artificial intelligence infrastructure. Seven companies now carry 30% of the S&P 500's weight, with Nvidia recently becoming the first company to reach a $5 trillion valuation. This week, several retail and tech giants will report results that could test this optimism:
- Nvidia reports first-quarter results Wednesday evening following its CEO's projection of $1 trillion in potential chip sales.
- Walmart and Target will provide updates on whether shoppers remain "resilient" as annual inflation sits at 3.8%.
- The Federal Reserve will release minutes from its April meeting, which may reveal growing dissent among officials regarding interest rate paths.
Nvidia’s earnings land Wednesday evening.
