Tuesday, May 5

Equity markets pushed the S&P 500 to a fresh record high despite renewed Middle East tensions driving oil higher, underscoring traders' focus on resilient U.S. earnings over hawkish Fed signals and supply shocks. The S&P 500 rose 0.3% to close Friday at a new peak, capping April's 10.4% gain—its strongest monthly advance since November 2020—while the Nasdaq climbed 0.9% on tech strength, bucking small-cap and growth laggards as energy surged on oil. This rotation caught desks off-guard, with value outpacing growth amid WTI at $102/barrel after Iran's peace proposal eased some fears, yet Brent hit $112 as Strait of Hormuz risks lingered.

The FOMC held rates at 3.50%-3.75% but drew the most dissents in Powell's tenure—three against easing language—flagging internal divisions that lifted 10-year Treasury yields to 4.38% from 4.33%, pressuring bonds as markets priced out near-term cuts. Big Tech earnings mixed the narrative: Alphabet soared on AI payoff, but Meta sank 8.7% and Microsoft 3.9% on capex hikes, revealing investor skepticism on spending translating to profits despite sales beats. Q1 GDP expanded 2.0% annualized, with AI-fueled 43.4% nonresidential investment jump offsetting softer spots, while core PCE at 3.2% kept inflation sticky.

Dollar weakened versus majors, reversing its war-driven rally, as gold held $4,600/oz; Japan's 10-year JGB yield ticked to 2.50% after BoJ hiked FY2026 inflation to 2.8% amid growth halved to 0.5%, hinting at hikes if supply shocks persist. China's Moody's stable outlook affirmed resilience despite debt risks. Tuesday's ISM services PMI matters because it tests if manufacturing divergence extends, with a sub-50 print forcing rethink on Fed pause narrative amid oil's inflation pass-through.