Tuesday, May 12

U.S. equities extended gains as April nonfarm payrolls rose 115,000 against consensus for 62,000, with unemployment steady at 4.3% and March revised higher to 185,000, defying slowdown fears that had built positioning for Fed cuts. The S&P 500 and Nasdaq closed at record highs, up 1.2% and 1.8% respectively on Wednesday before a Thursday pullback amid Iran tensions, while energy and materials lagged as WTI rebounded 3% to $95 after ceasefire doubts. Tech led with over 50% year-over-year EPS growth tied to AI infrastructure demand, where 85% of S&P 500 reporters beat estimates by 19% on average, lifting EPS forecasts to 28% from 12% and broadening outperformance across 10 sectors.

The labor beat reinforced resilient fundamentals against oil volatility from U.S.-Iran frictions, with initial claims at 200,000 below 205,000 expected and continuing claims at 1.77 million, the lowest since 2024. Bond yields ticked up to 4.38% on the 10-year Treasury as inflation worries from energy eased less than anticipated, while the dollar strengthened modestly versus majors. Internationally, Japan's Nikkei hit records and Europe advanced earlier in the week on risk-on flows, though RBA's third 25bps hike to 4.35% signaled persistent global tightening. Hyperscaler debt for AI capex already topped 2025 full-year levels in 2026 YTD, capping credit spread tightening.

Trump-Xi summit preparations on May 14-15 supported trade truce extensions around agriculture and AI, countering tariff escalation risks that desks had priced higher. Oil's swing highlighted energy supply fragility, with Persian Gulf tensions threatening the equity rally's growth backdrop.

Friday's construction spending and factory orders data matter because they gauge AI-driven capex momentum; stronger-than-expected prints would validate March's 1.5% factory orders surge from electronics and challenge any recession narrative.