Weekly Trader's Outlook

If you read the last week's blog, you might recall that I had a "Slightly Bullish" forecast for the first half of the week and "Volatile" for the back half of the week, citing several potential market moving catalysts, including several mega-cap tech earnings reports and an Federal Open Market Committee (FOMC) meeting. We got some upside volatility post mega-cap tech earnings, but the S&P 500 was down slightly to start the week, so my forecast turned out to be wrong. The rally in chips stocks and AI infrastructure plays experienced a pullback on Tuesday following a WSJ report that OpenAI missed some of their internal growth targets, but the pullback was short-lived and the rally resumed for the back half of the week. In fact, today the PHLX Semiconductor Index (SOX) hit a fresh all-time high today, driven by a combination of bullish momentum and increased CapEx guidance from the hyperscalers. Are chip stocks extended to the upside? Yes. But the trend is your friend (until the end, as they say), and it is difficult to predict a near-term countertrend pullback (more on this in the "Technical Take" section below).

Regarding the Iran conflict, earlier this week U.S. President Trump said that he is extending the blockade on the Strait of Hormuz and suggested he may consider military strikes if a deal is not reached soon. Earlier today, Trump said that he is "not satisfied" with Iran's latest peace proposal and would "blast them away" if negotiations fail. The issue around a potential deal appears to be centered around whether Iran is willing to abandon their nuclear program. WTI crude oil prices are down nearly 3% today but are up 8% from last Friday to $102.03/barrel.

On the earnings front, several AI infrastructure plays, including Seagate Technology, Bloom Energy, Generac Holdings and NXP Semiconductors rallied on strong results and robust guidance. Four of the "Mag 7" reported this week and delivered strong results and mostly, once again, increased CapEx guidance. As for the Q1 earnings scorecard, out of the 315 S&P 500 companies that have reported, 72% have beat on the top line and 81% have beat on the bottom line. Q1 revenue growth has been tracking at 11.18% while EPS growth is 28.38% thus far.

At the time of this writing (3:30 p.m. ET) stocks are mostly higher, though off the highs of the session (DJI - 45, SPX + 35, $COMP + 260, RUT + 12). Both the S&P 500 and Nasdaq Composite hit fresh all-time highs today. The impressive rally in stocks off the March 30th lows appears to be driven by both the AI infrastructure build out theme and EPS growth estimates for the S&P 500, which have been stair stepping higher over the past month. Essentially, markets have been overlooking any potential negative economic consequence from the Iran conflict and higher oil prices. That doesn't mean that there won't be any impact to the global economy, and nobody really knows how long the Strait of Hormuz will remain "closed." My guess is that stocks won't negatively react until there is evidence (data) that suggests a higher probability of a recession and/or stagflation. In the meantime, the focus remains on the trajectory of corporate earnings, which has obviously been higher. Next week is going to be busy on the earnings front and we'll also get the monthly jobs report. Perhaps more importantly in my view is whether there is any military escalation in Iran and whether oil prices push higher (Brent crude hit over $126/barrel, the highest price in four years, in overnight trading today). If oil prices push higher, I would suspect that would provide enough of a catalyst for investors to sell stocks given the extent of the recent rally. Nobody knows what will happen in Iran, they could come to a peace deal, but the negotiations have been stalling as indicated by President Trump's comments. While the momentum behind the bull run can persist for longer than anyone thinks, I'm a little concerned about the following heading into next week: a) investors may be complacent, getting mesmerized by the bullish momentum; b) the risk of a military strike on Iran appears to be elevated heading into the weekend; c) today's daily candle on the S&P 500 looks like a gravestone doji; and d) now that mega-cap tech is essentially behind us, the "pre-earnings positioning" play may be diminishing over the next week or two. Therefore, I'm going to provide a "Slightly Bearish" forecast for next week. That doesn't mean we can't hit fresh highs early next week, especially if there is no military escalation in Iran, but net-net I think we could end up lower by the end of next week. It's a counter trend call, but there is ebb and flow in all trends, be it higher or lower.

Monday (May 4): Business Inventories

Tuesday (May 5): ISM Non-Manufacturing Index, New Home Sales, Trade Balance

Wednesday (May 6): ADP Employment Change, EIA Crude Oil Inventories, MBA Mortgage Applications Index

Thursday (May 7): Construction Spending, Consumer Credit, Continuing Claims, EIA Natural Gas Inventories, Initial Claims, Productivity-Preliminary, Unit Labor Costs

Friday (May 8): Nonfarm Payrolls, Average Hourly Earnings, Average Workweek, Unemployment Rate, University of Michigan Consumer Sentiment, Wholesale Inventories

Monday (May 4): Axsome Therapeutics Inc. (AXSM), BWX Technologies Inc. (BWXT), CNA Financial Corp. (CNA), Coterra Energy Inc. (CTRA), Diamondback Energy Inc. (FANG), Norwegian Cruise Line Holdings Ltd. (NCLH), ON Semiconductor Corp. (ON), Palantir Technologies Inc. (PLTR), Pinnacle West Capital Corp. (PNW), Tyson Foods Inc. (TSN)

Tuesday (May 5): Advanced Micro Devices Inc. (AMD), Anheuser-Busch Inbev SA (BUD), Arista Networks Inc. (ANET), Cummins Inc. (CMI), Duke Energy Corp. (DUK), Eaton Corporation PLC (ETN), Emerson Electric Co. (EMR), EOG Resources Inc. (EOG), KKR & Co. (KKR), Lumentum Holdings Inc. (LITE), Pfizer Inc. (PFE), Shopify Inc. (SHOP), Strategy Inc. (MSTR), Suncor Energy Inc. (SU)

Wednesday (May 6): Apollo Global Management (APO), Arm Holdings PLC (ARM), Applovin Corp. (APP), CVS Health Corp. (CVS), DoorDash Inc. (DASH), Equinor ASA (EQNR), Fortinet Inc. (FTNT), Marriott International Inc. (MAR), Novo Nordisk A/S (NVO), Uber Technologies Inc. (UBER), Walt Disney Co. (DIS)

Thursday (May 7): Airbnb Inc. (ABNB), Argenx SE (ARGX), Becton Dickinson & Co. (BDX), Cenovus Energy Inc. (CVE), Cheniere Energy Inc. (LNG), Cloudflare Inc. (NET), Coinbase Global Inc. (COIN), CoreWeave Inc. (CRWV), Datadog Inc. (DDOG), Howmet Aerospace Inc. (HWM), McDonald's Corp. (MCD), McKesson Corp. (MCK), MercadoLibre Inc. (MELI), Shell PLC (SHEL), WW Granger Inc. (GWW)

Friday (May 8): Anglogold Ashanti PLC (AU), Brookfield Asset Management Inc. (BAM), Enbridge Inc. (ENB), Fidelity National Information Services (FIS), PPL Corp. (PPL), Sony Group Corp. (SONY), Toyota Motor Corp. (TM), Ubiquiti Inc. (UI)

There was a large batch of economic data for markets to digest this week, highlighted by an FOMC meeting, the monthly PCE Prices report and an advanced reading on Q1 GDP. Regarding the FOMC meeting, as expected rates were left unchanged, and Fed Chair Jerome Powell said that he will remain on the Board of Governors for a period of time to ensure a smooth transition and manage personal legal matters. Regarding the PCE report, the figures were in line with estimates, but the trajectory of inflation is definitively higher. This was also reflected in the Core PCE reading within the advanced reading of Q1 GDP (quarterly PCE vs. monthly PCE) which accelerated to the strongest reading in over a year (+4.3%). The stock market didn't respond negatively to higher inflation which Is likely because it is expected, given the recent spike in energy prices. Elsewhere, the Atlanta Fed significantly revised their Nowcast for Q1 GDP to 3.7% (primarily driven by consumer spending), and Weekly Jobless Claims hit a 50-year low. Here's a breakdown of the reports:

• FOMC Meeting: The Federal Reserve left its benchmark interest rate unchanged (3.50-3.75%) in an 8-4 decision. This is the first time four members dissented on a Fed decision since October of 1992 - Hammack, Kashkari and Logan dissented, in favor of no rate change but without an easing bias, while Miran dissented in favor of 25 bp cut. The Fed noted that economic activity has expanded at a solid pace, adding that inflation is elevated, along with a high level of economic uncertainty due to the developments in the Middle East.
• PCE Prices: Headline month-over-month (MoM) prices increased 0.7% in March, up from +0.4% in February, but in-line economists' expectations. This translates into a year-over-year (YoY) gain of 3.5%, which was also in line with estimates.
• PCE Prices – Core: Core prices increased 0.3% MoM and +3.2% on a YoY basis (both in line with estimates). The +3.2% annual gain is the highest reading since November of 2023.
• Q1 GDP – Advance Estimate: U.S. gross domestic product rose at a seasonally and inflation-adjusted rate of 2.0%, above Q4's reading of just 0.5%, but below the Dow Jones consensus estimate of 2.3%. The acceleration was primarily driven by government spending and increased business spending, primarily in AI infrastructure. Headline PCE increased 4.5% from 2.9% in the prior quarter. Core PCE (excluding food & energy) jumped 4.3% from 2.7% in the prior quarter, which was above the 4.1% expected.
• Personal Income: 0.6% vs. 0.3% est.
• Personal Spending: 0.9% vs. 0.5% est.
• Chicago PMI: The Chicago Purchasing Managers' Index retreated 3.6 points in April from the prior month to 49.2, which was below the 54.8 economists had expected. Any reading below 50 represents economic contraction, and this represents the first contraction reading of 2026.
• ISM Manufacturing Index: The index registered a 52.7% reading in April, the same as March, but below the 53.3% Briefing forecast. The Prices Index increased 6.3 points from March to 84.6. In the last three months, the Prices Index has jumped 25.6 points and the April reading is the highest since April of 2022.
• S&P Global U.S. Manufacturing PMI Index: Rose to 54.5 in April from 52.3 in March, and above the preliminary estimate of 54.0. This represents the strongest expansion in the manufacturing economy since May of 2022.
• Durable Goods Orders: 0.8% vs. 0.4% expected. Durable Goods ex-transportation 0.9% vs. 0.5% expected.
• Consumer Confidence: U.S. consumer confidence unexpectedly edged 0.6 points higher in April to 92.8, which was above the 90.0 expected.
• Housing Starts (March): Jumped 1.502 in March, above the 1.38M expected and the fast pace since December of 2024.
• Building Permits (March): Fell 10.8% from the prior month to 1.372M in March. This represents the lowest pace since last August.
• EIA Crude Oil Inventories: -6.23M barrels
• EIA Natural Gas Inventories: +79 bcf
• Initial Jobless Claims: Initial applications for US jobless benefits dropped 26K from last week to 189K, which was well below the 212K economists had expected. The 189K print represents the lowest reading in more than 50 years. Continuing Claims decreased 23K from the prior week to a seasonally adjusted 1.785M.
• The Atlanta Fed's GDPNow "nowcast" for Q1 GDP jumped up to 3.7% on Thursday from 1.2% last Friday. The increase was primarily driven by consumer spending (PCE) and nonresidential fixed investment.

U.S. Treasury yields followed oil prices higher this week, and the yield curve experienced some flattening due to the relatively larger jump in the two-year. Compared to last Friday, two-year Treasury yields jumped ~11 basis points (3.882% vs. 3.776%), 10-year yields moved up ~6 basis points (4.376% vs. 4.31%), while 30-year yields increased ~5 basis points (4.965% vs. 4.916%).

Market expectations around the Federal Reserve's monetary policy shifted from a potential cut in 2027 to a potential rate hike in 2027, though conviction is low. Per the Bloomberg rate probabilities, markets are putting a roughly 20% chance of a rate hike at the April 2027 FOMC meeting. Certainly, this week's FOMC meeting, which included four dissents (three for no easing bias, one for rate cut), was a factor in the shift. The bottom line is that markets are not expecting anything from the Fed this year, at least that is the current state.

The S&P 500 index (SPX) continues to melt-up into all-time high territory, but the S&P 500 Equal Weight index (SPXEW) has been exhibiting some relative underperformance. Yes, the SPXEW is only 0.6% below all-time highs, but the SPX is nearly 4% above its prior all-time high. This suggests that mega and large-cap stocks, primarily in tech (due to the AI infrastructure binge), are driving the bull market, at least for now. Technically the SPXEW hit a fresh all-time high of 8,311 back on April 21st, but the index reversed course that day, which suggests 8,300 is near-term resistance. Therefore, for now, the technical perspective is neutral to slightly bearish for this index, at least until it can meaningfully break out to fresh all-time highs.

Near-term technical translation: neutral to slightly bearish

Last week I had a long-term bullish, but near-term cautious outlook on the PHLX Semiconductor Index (SOX), noting the SOX's 85 Relative Strength Index (RSI), which was the highest reading in over 20 years. On Monday/Tuesday the SOX pulled back following news that OpenAI missed a few internal growth metrics but subsequently resumed its march higher. Today the index is trading at fresh all-time highs and it's unclear how long the rally will last before a longer period of consolidation is encountered. Until then, the "trend is your friend," as it is said in technical analysis, but also respect the potential for a mean reversion correction at some point. Are there any trend reversal signals? From a technical perspective, it can manifest as either a bearish reversal (candlestick) pattern or a negative divergence in the RSI (meaning you get a new price high, but with a lower relative reading on the RSI). To be clear, it's too early to confirm a negative divergence in the RSI because the index could continue to climb higher and pull the RSI along with it, but that would require another sharp move higher. As for bearish reversal patterns, there are several out there in technical land–bearish engulfing candle, dark cloud cover, shooting star, evening star, bearish abandoned baby, three black crows or bearish harami (among others). As for the technical outlook, I'll stick to what I had last week (Intermediate and longer-term bullish, near-term cautious), since the SOX is making a new high today, but not convincingly. Ideally, the bulls would like to see a longer green candle as the index breaks out to new highs, but today's new all-time high is manifesting in modest fashion. Next couple of days should help convey how much fuel is left in this impressive rally in chip stocks.

Technical translation: Intermediate and longer-term bullish, near-term cautious

The Bitwise 10 Large Crypto Index is flat week-over-week, with bitcoin up 1% and ether down 1% at the time of writing this on Friday. Over the past few months several major wall street firms have come out with price targets for bitcoin that forecast the cryptocurrency reaching a new high in 2026, ranging anywhere from $126,000 to $200,000 and above. In our latest note, "A Dream of Spring Amid Crypto Winter," the article suggests that the worst may be behind bitcoin, however, it's unclear at this time whether the cryptocurrency has enough factors working for it in the short-term to push it towards a new high in 2026.

Looking at past crypto winters can help put this into perspective. The bear market that bottomed in January 2015 did not make a clean break above inefficient miner production prices until May 2017. The next bear market bottomed in December 2018, while the recovery did not break above inefficient miner production prices until December 2020. The bear market that bottomed in November 2022 did not break above this level until November 2023. While the recovery periods have shortened over the past few cycles, history suggests it is unlikely that bitcoin would sustainably break above inefficient miner production prices in 2026—currently around $95,000. Past bear‑market recoveries suggest this level is more likely to serve as price resistance in the intermediate term, though past performance is no guarantee of future results. Putting $95,000 in perspective, investors who bought at the bear‑market trough of $60,000 would be up nearly 60%.

It's important to note that cost of production and bitcoin prices have a reflexive relationship. Rising prices attract additional miners, which increases difficulty and pushes up production costs, feeding back into the network's economics. However, with the recent pivot to high-performance computing (HPC) for AI data centers, there may be sufficient demand elsewhere to keep datacenters fully utilized in the near term.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, the S&P 500 and Nasdaq both notched fresh all-time highs this week (the RUT is a touch below all-time highs), but there was essentially no improvement in market breadth. This suggests mega-cap and large-cap stocks (mostly in tech) continue to be the locomotive of this bull market. Compared to last Friday, the SPX (white line) breadth is flat at 58.52% vs. 58.72%, the CCMP (blue line) is essentially unchanged at 44.01% vs. 44.18%, while the RUT (red line) declined to 60.97% from 62.15% (all week-over-week).

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (131 today): Archer Daniels Midland Inc. (ADM + $0.26 to $74.80), Bloom Energy Corp. (BE - $0.27 to $283.09), Generac Holdings Inc. (GNRC - $2.40 to $256.83), NXP Semiconductors Inc.  (NXPI - $7.39 to $286.20), Starbucks Corp. (SBUX + $1.28 to $106.61), Seagate Technologies Holdings Inc. (STX + $40.75 to $714.39)

This Week's Notable 52-week Lows (25 today): Amcor PLC (AMCR + $0.12 to $38.16), Best Buy Co. (BBY - $0.21 to $60.28), Boston Scientific Corp. (BSX + $0.23 to $57.84), Charter Communications Inc. (CHTR + $6.54 to $171.71), Clorox Company (CLX - $8.19 to $88.25), Lululemon Athletica Inc. (LULU - $1.40 to $136.29)