Friday, May 8

U.S. equities advanced sharply Thursday as de-escalation signals in the U.S.-Iran conflict outweighed hawkish Fed tones and hotter-than-expected PCE inflation, with the S&P 500 rising 1.0% to close April at a 10.4% monthly gain—its strongest since November 2020—while the Nasdaq followed suit on broad tech leadership. All 11 S&P sectors gained, led by technology up over 50% year-over-year in Q1 earnings driven by AI and cloud demand, though Meta and Microsoft shares fell 8.7% and 3.9% respectively after signaling higher capex that questioned near-term profit translation. This rotation favored large-cap value over growth and small-caps, boosted by energy's lift from prior oil spikes now reversing.

Treasury yields dipped slightly amid the risk-on shift, with the 10-year ending at 4.42% and 2-year at 3.94%, countering week-long selling pressure from energy-led inflation fears and Fed hawkishness that had pushed 10-year JGB yields to 2.50%. Q1 GDP expanded 2.0% annualized, backed by 43.4% surge in information-processing equipment investment signaling AI momentum, while core PCE rose 3.2% year-over-year—hotter than consensus—yet markets prioritized labor stability from steady 6.9 million JOLTS openings. Oil prices fell as Iran rhetoric softened, easing supply shock fears that had propped energy earlier.

Internationally, China's Moody's outlook upgraded to stable from negative on resilient growth and fiscal buffers, supporting range-bound equities despite raw material cost pressures hitting some sectors. Gold held firm as haven flows persisted amid war uncertainty, while USD edged lower against majors on risk appetite.

Friday's nonfarm payrolls report commands focus, as a print above 200,000 would validate labor resilience and temper end-of-year Fed cut odds now priced at one despite steady 2% GDP path.