Last week offered something relatively rare: the economy lost speed without losing its footing. This is due to moderating wages and steady business activity that have kept corporate profits healthy and pushed U.S. stock markets near all-time highs.

 

The main risk continues to be inflation, which is still above the Federal Reserve's target. Tensions in the Middle East are continuing to keep oil prices elevated, making rate cuts unlikely anytime soon. That argues for staying invested in well-run companies with reliable profits, with some exposure to bonds and assets that hold value when rates stay high.

 

Below is a look at the forces behind last week’s moves and what to look for in the coming week. 

 

 

Stock Index Performance 

• The S&P 500 rose 2.33%.
• The Nasdaq 100 jumped 5.50%.
• The Dow Jones Industrial Average edged up 0.22%.

 

 

What the Data Is Telling Us

The Economy Is Still Growing, Just More Quietly. The services sector expanded in April, though new orders dropped sharply, signaling softer demand ahead. First-quarter Gross Domestic Product (GDP) grew at a 2% annual rate, carried largely by business investment as consumer spending pulled back. Overall growth is moderating, not reversing.

 

The Job Market Is Cooling, Not Cracking. April added 115,000 jobs, nearly double consensus estimates, while the unemployment rate held at 4.3%. Wage growth came in at 3.6% annually, slightly below forecasts and close to ideal for the Fed: it’s enough to support consumers without feeding inflation.

 

Inflation Is Keeping the Fed's Hands Tied. The Fed's preferred inflation measure, PCE, stands at 3.2%, above its 2% target, and higher energy prices pushed headline inflation to 3.3% in March. Policymakers held rates steady in April, and some officials warn that policy may need to stay restrictive well into 2027. The 10-year Treasury yield ended the week near 4.4%, reflecting a market that has accepted that rate cuts will come more slowly than expected.

 

 

The Week Ahead 

The April Consumer Price Index (CPI) report on Tuesday, May 12, is the most important release of the week. It will show whether the recent rise in energy and services prices is fading or becoming entrenched. A softer reading would ease pressure on the Fed; a hotter one would reinforce fears that rate cuts remain a long way off, pushing yields higher and weighing on stocks.

 

The other dynamic to track is how markets absorb the reality of a prolonged restrictive rate environment. Last week's strong jobs report has pushed that expectation further into 2026. Rising long-term yields would put pressure on rate-sensitive areas such as small caps, real estate, and speculative growth stocks, while steady yields would give the rally room to broaden.

 

Developments in the conflict between the United States and Iran remain the most direct risk factor, feeding into oil prices and the Fed's rate decisions. As the two countries continue to negotiate a peace deal, markets are watching closely to see whether relief will come for oil prices. 

 

On the market side, the key question is breadth. An advance that extends beyond mega-cap technology, AI, and semiconductors into other sectors would signal broader market health and reduce concentration risk.

 

 

 

This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.

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