May 4 – May 10

Geopolitical headlines and oil-price swings dictated sentiment this week even as corporate results anchored a broader equity advance. From May 4–10 markets repeatedly flipped between risk-on and risk-off as U.S.-Iran developments sent WTI between roughly $95 and $126 per barrel, while strong Q1 earnings—powered by an AI capex surge—kept equities near record highs and forced investors to weigh growth momentum against rising inflation and a more hawkish central bank backdrop.

The dominant narrative was the tug between geopolitics and fundamentals. Early in the week, hopes of a ceasefire and a U.S. blockade pressuring Iranian exports knocked Brent sharply lower and helped lift global shares: on May 4 the S&P 500 recovered to pre-conflict levels and Japan’s indices rose, with large-caps outperforming small-caps as energy retreated. That optimism returned on May 7–8 when de-escalation signs again drove Brent down and pushed the S&P to fresh highs, capping April with a 10.4% monthly gain—its strongest since November 2020. Yet that fragile calm repeatedly unraveled. Renewed clashes in the Strait of Hormuz on May 6 and again later in the week sent WTI spiking to about $105 on May 6 and toward $126 intraday at one point, prompting equity pullbacks (the Dow fell over 1% on May 6) and capping what had been a six-week stretch of gains by May 10.

Beneath the noise, corporate earnings supplied the ballast. Through May 7 roughly 85% of S&P 500 companies had beaten EPS estimates by an average of 19%, driving broad tech strength: technology earnings were described as up more than 50% year-over-year in Q1 and nonresidential investment in information-processing equipment jumped 43.4%, evidence of heavy AI-related capex. Alphabet’s results rallied sentiment while big-spend announcements weighed on peers—Meta’s shares plunged between 8.7% and 10% across sessions (May 5, May 9) after elevated capex guidance, and Microsoft slid roughly 3.9% on heightened investment plans. That split left markets characteristically selective: investors rotated toward large-cap value and energy when oil rose, then back to growth when de-escalation cut oil prices, yet the overall message was that earnings acceleration—28% median earnings growth referenced in briefs and outsized beats—allowed equities to absorb episodic geopolitical shocks.

Monetary policy and yields formed the other critical axis. The Federal Open Market Committee held the policy range at 3.50%–3.75% but produced three dissents against easing language—the most in Chair Powell’s tenure—which reinforced a more cautious Fed narrative. Bond markets moved accordingly: the 10-year Treasury traded around the mid-4% area all week, touching 4.38% on several days and briefly moving to 4.42% as oil and inflation worries waxed and waned. Core PCE inflation ran hotter than desired at about 3.2% year-over-year, and Q1 GDP came in at a 2.0% annualized pace, complicating the Fed’s calculus. Internationally, central bank tilts diverged: the Bank of Japan raised its FY2026 inflation forecast to 2.8% and Japan’s 10-year JGB yield sat near 2.50%, while ECB futures priced in one or two hikes by year-end as energy-linked inflation risks persisted. Exchange rates reflected these pressures—dollar strength returned on risk-off spikes and ebbed when oil eased—adding an extra transmission channel to inflation expectations and corporate margins.

Market structure and positioning amplified the week’s swings. Traders repeatedly pared and rebuilt hedges as ceasefire hopes were priced in and then unwound when new flare-ups hit. That amplified sector rotation: energy and materials led on oil spikes, while technology and large caps led rallies when conflict risks subsided. Credit markets felt the reverberations too—investment-grade corporates underperformed amid heavy issuance as yields rose, while high-yield tightened on month-end risk appetite. Safe-haven assets like gold and haven flows were resilient; gold remained bid above key levels across the week even as the dollar oscillated. The week’s activity exposed the market’s fragility: strong fundamental data and outsized earnings gave investors reason to stay bullish, but geopolitics and commodity-price risk were sufficient to unsettle positioning and reprice yield and inflation expectations quickly.

Looking ahead, the priorities are clear. Geopolitical developments in the Gulf remain the principal immediate risk—any escalation could re-ignite oil above recent highs and force a sharper policy-repricing. On the data calendar, the ISM manufacturing PMI (flagged as critical in briefs) will test whether factory activity and the AI-driven equipment surge translate into broader industrial momentum; a sub-50 print would lend weight to growth-slowing narratives and complicate the Fed’s path. Watch next week’s flow of Fed commentary and market-implied rate paths for signs that the three FOMC dissents are influencing pricing; with core PCE at roughly 3.2% and labor-market signals mixed (initial claims around 200,000 and April payrolls outpacing expectations earlier in the week), every headline could shift the odds of cuts or a longer hold. Finally, corporate leadership remains a live story: continued AI capex fueling earnings will support valuations, but rising commodity costs and tariff/legal developments (including the pending Supreme Court issues cited in the briefs) could alter profit pass-through dynamics.

Themes: Oil & geopolitics; AI-driven earnings; Fed policy & yields; Inflation & macro data