Friday, May 22

An abrupt rethink on the Fed rate path was the dominant driver Thursday, as softer U.S. data pushed investors further into the 2026-cut camp and powered a late-session equity squeeze despite already crowded positioning in megacap tech. The S&P 500 added roughly 0.5% and the Nasdaq Composite outperformed with a gain near 0.8%, extending this week’s rotation back into growth and AI beneficiaries even as realized volatility in rates remains elevated. Europe lagged but held firm, with the STOXX Europe 600 up about 0.2%, while the Nikkei 225 eased around 0.3% as profit-taking in exporters followed recent yen strength.

In Treasuries, the 10-year yield slipped toward the 4.20% area and the 2-year fell closer to 4.60%, a move consistent with the market leaning into a slightly earlier first Fed cut and shallower term premium after a string of cooler activity and labor signals. The bull-steepening came despite heavy supply, suggesting real-money demand is re-engaging at these yield levels after several weeks of caution. The dollar weakened modestly, with the DXY edging lower as the euro and yen both firmed, reflecting the rates move rather than any fresh macro surprise from Europe or Japan.

In commodities, Brent crude hovered in the high-$70s per barrel and WTI around the mid-$70s, with prices capped by concerns that slower global demand growth will offset any supply discipline from OPEC+ into the second half of the year. Gold remained bid near recent highs, supported by lower real yields and a softer dollar, underscoring persistent demand for duration and macro hedges even as equities grind higher. Crypto traded directionally with other risk assets; bitcoin was little changed after recent gains, with flows more position-squaring than new conviction.

Attention now turns to the next U.S. labor and inflation prints, which matter because consensus has baked in a gentle cooling; any upside surprise in wage or core inflation data would force the market to reprice the newly aggressive Fed cut expectations that just powered this latest leg of the rally.