In 30 seconds: US equity markets continue their strong rally led by AI-driven tech stocks—particularly Dell, semiconductors, and software—with the S&P 500 and Nasdaq hitting new milestones, though breadth remains narrow and some analysts draw comparisons to the 1999-2000 bubble. Inflation readings across the US and Europe remain stubbornly elevated—with rising commodity prices, sticky core PCE, and surging European CPI—complicating central bank rate decisions and fueling debate over Fed independence and the pace of future cuts. A US-Iran agreement to reopen the Strait of Hormuz is being negotiated, with markets pricing in reduced near-term supply risk as Brent crude posts its largest monthly decline since March 2020, though details remain disputed and tanker flows are only slowly resuming. China's economy has been powered by a massive export surplus contributing roughly 6 percentage points to growth over five years, while Canada slipped into a technical recession in Q1 and European export growth has lagged global trade.
Modest daily moves, sure. But zoom out and the picture is less modest. The Dow, meanwhile, has crossed above 51,000 for the first time, up from 35,000 five years ago and 17,000 a decade before that. You could call that compounding. You could also call it a tech story wearing an index costume. The costume is thin. 11 S&P 500 stocks have doubled since the 3/30 low, and all from the Tech sector. Dell and Intel have both more than tripled so far this year. NetApp $NTAP recorded its first triple play since 2017, marking its first guidance raise since then, surging 30%. Software ($IGV) jumped 5% in a single session, now 35% off its lows though still 14% below its all-time high. Semis and software have risen by nearly identical amounts over the past month. The narrowness is the point. Implied correlation among S&P 500 members has fallen to its lowest level on record.
In the US, core PCE on a 3-month annualized basis printed at 3.78% in April, well above the Fed's 2% target. The commodity backdrop is not helping: the Bloomberg Commodity Spot Index 5-year CAGR has been consistently above the 5-year inflation rate, a dynamic that tends to pull CPI higher. The secular trend in commodities is up, suggesting elevated inflation has structural staying power. Meanwhile, goods inflation still matters. Wholesale inventories rose 0.5% month-over-month, below the 0.8% estimate. Defense capital goods orders hit $22.2B in April, a 25-year high, up 7% on the month. Worker compensation grew 0.8% quarter-over-quarter, while domestic corporate profits rose 2.7%. Labor's share of gross domestic income fell to 51%, the lowest since records began. Europe is running a parallel experiment in stickiness. Inflation in France, Italy, and Spain all surpassed the ECB's 2% target. Italy inflation: 3.3%. Germany headline inflation printed 2.6% in May, but Germany underlying price pressures remain stubborn. The summary: Disinflation at the surface, stickiness underneath. France's situation is particularly grim: GDP growth has turned negative, the debt-to-GDP ratio is near 120%, and the budget deficit is over 5% of GDP. You don't go and bomb a country in the Middle East, upsetting global energy markets and pushing prices up across the board.
The outline of a US-Iran agreement is coming into focus, and the market has decided to price it before the ink dries. Brent crude sits at $92 a barrel after posting its largest monthly price decline since March 2020. US retail gasoline fell 3.5¢ per gallon overnight, the largest single-day drop in roughly 17½ years. Speculators are unwinding: the week brought the biggest weekly pullback in net spec Brent positioning so far through the war. Trump has walked back most of his war goals, and the expected mechanics look like this: Qatar transfers $6 billion of Iranian assets to Iran, while the US insists it has nothing to do with the transfer. In return, the Strait opens and the blockade is dropped immediately. The frozen-funds question is already disputed. Reopening is proceeding slowly. Of 109 large tankers trapped inside the Gulf, Iran will not allow all of this shipping to pass through the Strait before the end of the 60-day MOU (at the end of July), as doing so would mean giving away their leverage. Iran was spotted loading a super tanker at Jask, with 50 million barrels in floating storage ready for export. The barrels, in other words, are already looking for buyers.
There is a story about global growth right now, and it has a very clear protagonist. China has been growing on the back of net exports the last five years. China's reliance on exports for growth, and the massive scale of its manufacturing surplus (roughly 10% of the GDP of the world's second largest economy, or approximately 2% of world GDP) should be obvious from any cursory look at the actual data. Chinese trade growth far exceeded global trade growth, while European export growth lagged behind it. The European trade picture looks even worse once you strip out Ireland's pharma surplus. Europe's surplus would have disappeared from the customs data but for the surge in Ireland's pharma surplus, a surplus driven by US pharma companies using trade to shift profits to Ireland. If your continent's external balance depends on transfer pricing by pharmaceutical multinationals, you do not really have a trade surplus. You have a tax strategy. In Canada, weak business and government spending drove a slight contraction in the first quarter.
Here is what moved this week.
S&P 500: 7,580.06, up 0.22% on the day
Gold: $4,576.90, up 1.72% on the day
US Dollar (DXY): 98.90, down 0.12% on the day
WTI crude: $87.88, down 1.15% on the day
Gas (per gallon): $4.47, down 0.33% on the week
30-year fixed mortgage: 6.53%, up 2 bp on the week
Initial jobless claims: 215,000, up 2.38% on the week
Continuing claims: 1,786,000, up 0.85% on the week
Average hourly earnings: $37.41, up 0.16% on the month