In 30 seconds: A strong Q1 earnings season, led by semiconductor names like Intel and NVIDIA hitting multi-year highs, is driving outperformance in the SOX and Nasdaq relative to the broader market, with AI infrastructure spending and high-tech equipment investment accelerating. Despite diplomatic declarations that the Strait of Hormuz is open, tanker crossings have fallen, oil prices have surged roughly $14 per barrel on the week, and industry executives expect traffic normalization to take months, with US production unable to quickly offset the roughly 13 million barrels per day offline in the Gulf. The Trump Treasury's use of the Exchange Stabilization Fund to provide dollar swap lines and financial support to UAE and other Gulf allies is raising concerns about transparency, conditionality, and whether it effectively finances Gulf investments in China while bypassing Congressional oversight. With Powell's Fed chairmanship ending May 15, markets and political observers are watching whether Kevin Warsh can be confirmed by the Senate in time, as Trump signals he will install a temporary replacement if the vote doesn't happen before the deadline.
The semiconductor complex is doing something you almost never see. Every stock in the SOX — all 30 of them — is outperforming the S&P 500 since 3/30. The Semis ETF $SMH rallied 5% on the day, dwarfing the Nasdaq 100 ETF $QQQ at 1.5% and the S&P 500 ETF $SPY at 0.50%. S&P 500 Equal Weight $RSP: 0.4%. If you own boring stocks, this is not your week. The catalyst is earnings, and the triple plays keep stacking up. Intel $INTC reported its first triple play in more than two years, and shares surged 20%. NVIDIA $NVDA is set to make a new all-time closing high after a nearly six-month wait. MaxLinear $MXL has back-to-back triple plays, with the stock on track for the best earnings reaction in its history by a wide margin. Digital Realty Trust $DLR reported its third triple play in four quarters, gaining 3%. The broader earnings picture explains why the market has held together. Consensus earnings growth sits at 13% year over year, with episodes of 15-20% year-over-year growth described as noteworthy. Underneath the surface, capital spending tells the story. High-tech equipment spending grew at 7.7% annualized in Q1, while electrical equipment spending ran at 17%. The market is paying for the picks and shovels, not the prospectors. The biggest single-day earnings winner this season belongs to United Rentals $URI, up 22.92%.
President Trump and Iran's foreign minister declared that the Strait of Hormuz was open on April 17th. The arithmetic here is unforgiving. Roughly 13 million barrels per day of Gulf production sits offline. Even at the fastest pace of US production growth on record — roughly 2 million barrels per day per year in 2018 — replacing 13 million barrels per day of offline Gulf production would take years. And the US rig count is moving in the wrong direction: the latest data show it fell 3 rigs to 407, which is not the posture of an industry gearing up for a wartime sprint. At best, US producers may respond after 6 months. Japan's import price data shows what the disruption looks like downstream. Import prices there ran 2.7% year over year in February, then leapt to 7.9% in March. Gulf oil production offline: 13 million barrels per day. Brent crude (June futures) rose $14 per barrel on the week.
Bessent's Treasury is pioneering a new kind of highly political financial agency — and the USD swap lines being prepared for the UAE are a case in point. The practice has precedent. Consider the geometry. Bessent is preparing dollar swap lines for the UAE, a country that has also newly signed investments in China. There is something radically new about the US providing dollar credit to a country that itself has pledged to invest in the US — looks like the US government is financing an off balance investment fund outside Congressional scrutiny, with the Emirates getting the upside. That is, to put it gently, novel. The arithmetic is tight. Treasury doesn't have much capacity to fund. Mobilizing SDRs to offer cheap, unconditional credit to a petrostate would represent a sharp departure from tradition: historically a source of highly conditional financing, almost always lending in conjunction with an IMF program. Bessent's Treasury provided a financial package to Milei in September 2024, an earlier example of this kind of highly political financial intervention.
Prediction markets put the probability of a pre-deadline confirmation at 28%. Polymarket probability Warsh confirmed by summer end: 90%+. The market just thinks the timing will be messy. The mess has a specific shape. The White House has said it will install a temporary Chairman on May 15 when the current Fed Chair's term ends. These two positions are not compatible. The Senate is in session next week, out the following, and then back. The timeline has been described as a tight turnaround, but doable. Meanwhile, the inspector general subplot continues to simmer. Federal Open Market Committee decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent. Federal Open Market Committee decided to lower its target for the federal funds rate 50 basis points to 1 percent. Crisis-era dovishness, in other words. Whether that tells you anything about what he would do now is a question you can answer however you like.
Here is what moved this week.
S&P 500: 7,165.08, up 0.80% on the day
Gold: $4,725.80, up 0.44% on the day
US Dollar (DXY): 98.51, down 0.29% on the day
WTI crude: $95.16, down 0.72% on the day
Gas (per gallon): $4.04, down 1.92% on the week
30-year fixed mortgage: 6.23%, down 7 bp on the week
Initial jobless claims: 214,000, up 2.88% on the week
Continuing claims: 1,821,000, up 0.66% on the week
Average hourly earnings: $37.38, up 0.24% on the month