Macro
The macro backdrop deteriorated further as markets increasingly shifted from pricing geopolitical tail risk toward pricing sustained energy, inflation and supply-chain disruption. Investors no longer treated the Iran shock as temporary. Brent remained above $100/bbl for most of the week, while the back end of global yield curves repriced materially higher, signalling growing acceptance that disruption risks may persist well beyond the immediate military phase. Importantly, markets increasingly recognise that a ceasefire alone is insufficient: what matters for inflation and growth is the restoration of stable oil flows and the normalisation of supply chains.
Inflation data reinforced that transition. U.S. April CPI rose 0.6% m/m and 3.8% y/y, while PPI surged 1.4% m/m and 6.0% y/y, the strongest annual increase since late 2022. Markets increasingly interpreted the move as externally driven cost pressure tied to energy, freight and supply bottlenecks rather than overheating domestic demand. Broadening inflation still appears concentrated in first-round transmission effects rather than entrenched wage-price spirals, but real wages turned negative again for the first time since 2023 as energy and food inflation accelerated. Treasury markets reflected the shift, with the U.S. 30Y yield moving back above 5% and term premia continuing to widen.
Consumer data increasingly point toward a slowing real economy underneath elevated nominal spending. Retail sales rose 0.5% m/m, but goods inflation accelerated sharply, implying real goods consumption was likely flat-to-negative. Restaurant spending remained subdued, reinforcing the view that higher energy prices are crowding out discretionary demand. The labour market continues exhibiting the same “low-hire, low-fire” equilibrium visible for several months, with claims rising modestly but layoffs still limited. The result remains a highly uneven K-shaped economy where spending resilience is increasingly concentrated among wealthier households benefiting from elevated asset prices and limited equity-market drawdowns, while lower-income cohorts face growing pressure from fuel, food and financing costs.
The geopolitical backdrop also shifted materially in tone. President Trump adopted a notably more aggressive posture toward Iran following the summit with Xi Jinping, openly describing the U.S. naval blockade as “so effective” that Iranian oil exports had effectively collapsed over the prior two and a half weeks, implying roughly $500M/day of disrupted Iranian revenue. Trump also suggested the ceasefire was implemented largely at the request of external nations rather than as a strategic objective of the U.S., reinforcing market concerns that Washington remains willing to re-escalate if negotiations deteriorate. His rejection of Iran’s latest proposal “after the first sentence” further underscored how little diplomatic progress has been made despite the temporary ceasefire framework.
China remained central to the macro discussion, though the Trump-Xi summit appeared more focused on stabilisation and transactional management than any genuine strategic reset. Discussions about Boeing aircraft orders, semiconductor access, agricultural purchases, and rare-earth supply chains reinforced the fact that both economies remain deeply dependent on each other despite accelerating geopolitical competition. In practice, the near-term equilibrium increasingly resembles managed strategic interdependence rather than either full decoupling or renewed globalisation. China remains willing to increase imports of selected U.S. commodities such as energy, beef, and soybeans, but this dynamic largely supports raw-material exports while China continues exporting higher-value-added industrial goods back into the U.S., limiting any meaningful rebalancing of manufacturing competitiveness or employment trends. The broader message from the summit was clear: transactional stabilisation remains possible, but the relationship is not strategically repaired.
The summit also reinforced the degree to which modern macro risk is increasingly inseparable from supply-chain concentration and technological dependency. Discussions about NVIDIA chips, Boeing aircraft, rare earths, EV batteries, and Taiwan’s semiconductor production underscored how vulnerable the global economy remains to a small number of geopolitical choke points. Taiwan remains critical, with most advanced chip manufacturing still tied directly to the island, while China maintains overwhelming dominance in rare earth processing and several critical industrial inputs. Trump’s comments describing the U.S. position on Taiwan as effectively “neutral” were closely watched, given the centrality of Taiwan to global AI and semiconductor supply chains. At the same time, China continued avoiding any meaningful public role in pressuring Tehran despite its direct exposure to Gulf energy flows, reinforcing the broader market conclusion that major powers remain economically interdependent but increasingly unwilling or unable to provide coordinated strategic leadership during periods of global stress.
Global supply-chain indicators also deteriorated materially. The New York Fed’s global supply-chain pressure index rose to its highest level since July 2022, reinforcing concerns that the energy shock is increasingly feeding into logistics, manufacturing costs and industrial pricing globally. China’s producer prices accelerated at the fastest pace since 2022, while Japanese government bond yields also came under renewed pressure as imported energy inflation intensified across Asia.
Europe, meanwhile, remains fragile but stable enough to avoid immediate recession concerns. UK Q1 GDP surprised positively at 0.6% q/q, while German expectations indicators improved modestly despite still-weak industrial conditions. However, elevated energy costs continue to act as a major tax on European growth. UK gilts also came under heavy pressure, with the 30Y yield briefly rising toward 5.9%, the highest level since 1998, as investors simultaneously repriced inflation persistence, fiscal risks and rising political uncertainty around the Starmer government. Importantly, the selloff increasingly resembles a broader structural repricing of UK duration risk rather than a simple reaction to domestic politics alone, with higher energy pass-through, elevated supply needs and concerns around long-term fiscal credibility all contributing to the move.
More structurally, renewed discussion of Eurobonds and reserve-asset fragmentation highlights growing concern within Europe about long-term dollar dependence, fiscal fragmentation, and the absence of a sufficiently deep euro-denominated safe-asset market. Across global markets, the dominant macro message remains that growth has not collapsed, but inflation risk, geopolitical fragmentation and supply-chain insecurity are proving materially more persistent than markets expected only a few months ago. The broader regime increasingly resembles a structurally higher-cost world, characterised by strategic redundancy, industrial security, elevated fiscal demands, and reduced policy flexibility, rather than the disinflationary globalisation framework that dominated the previous cycle.
Equities
U.S. equities were broadly flat but internally weak, with the S&P 500 +0.13%, the Nasdaq -0.08%, the Russell 2000 -2.37%, and the Dow -0.17%. Beneath the index-level stability, breadth deteriorated sharply: the equal-weight S&P underperformed the cap-weighted index by ~130 bps, while RSP fell 1.2%. The S&P 500 closed higher twice despite negative NYSE breadth, reinforcing the rally’s increasingly narrow nature.
Leadership remained concentrated in AI infrastructure, energy, and selected defensive/cyclical pockets. Energy was the best-performing sector, up 6.75%, as WTI crude rose 10.5% back above $100/bbl, while technology gained 1.19% despite mixed performance across software and semiconductors. Cisco +22.4% was the key positive earnings surprise, with results reinforcing the accelerating enterprise AI modernisation cycle. Nvidia +4.7% also supported broader sentiment ahead of next week’s Q1 earnings release, while the highly anticipated CBRS IPO priced at $185 and closed 51.2% above issue, underscoring continued appetite for AI-linked scarcity assets and infrastructure exposure.
However, the broader market remained notably weaker beneath the surface. Consumer discretionary fell 3.07%, real estate -2.59%, materials -2.28%, utilities -2.05%, industrials -1.15%, and communication services -0.84%. Small-caps, most-shorted names, regional banks, airlines, machinery, homebuilders, building products, and China tech all underperformed. Higher energy prices and persistent concerns around consumer spending continued to pressure discretionary-linked areas, while elevated yields remained a headwind for duration-sensitive equities, including real estate, homebuilders, and smaller-cap growth.
The AI capex and compute-demand theme continued to dominate positioning and market leadership. Semiconductors and memory initially extended recent momentum before seeing some late-week profit-taking, while networking, power infrastructure, and datacenter-linked names remained key beneficiaries of ongoing expectations for hyperscaler and enterprise spending. At the same time, the debate around positioning continued to intensify. Multiple analysts highlighted signs of forced and mechanical buying, while BofA noted that the SOX index is trading further above its 200-day moving average than it did during the dotcom era, even as EvercoreISI argued that broader S&P 500 valuations remain below 1999 extremes. Nvidia’s earnings next Wednesday are increasingly viewed as the next major test of both the AI capex narrative and current valuation support across the semiconductor complex.
Consumer-facing equities continued to reflect an increasingly bifurcated backdrop. Retail, apparel, and several lower-end discretionary exposures remained under pressure amid concerns that higher fuel and living costs are crowding out real spending power. However, analysts continued to note the K-shaped nature of consumption trends, with higher-income consumers remaining significantly less exposed to energy-related spending pressure. The divergence between premium and lower-income consumption trends continued to show up across retail, travel, and discretionary earnings commentary.
Corporate dispersion remained elevated. Upside reactions were concentrated in companies exposed to AI, datacenter, infrastructure, and operational execution. VSTS +32.6% beat across most key metrics and significantly raised FCF guidance. TSEM +29.8% benefited from strong demand from SiPho customers and commitments extending through 2027. FPS +11.5% highlighted robust datacenter and grid-market demand, while ARMK +17.8% delivered stronger-than-expected organic growth across both U.S. and international operations. TTWO +10.0% gained on speculation around GTA 6 order timing, while Ford +8.8% rose on reports it could secure a major energy-storage agreement with large customers.
On the downside, the market showed little tolerance for weaker guidance, margin pressure, or slowing growth. WIX -31.8% flagged softness in its Partners business and delays tied to the Iran conflict. GTM -39.5% said customers are pausing purchasing decisions amid AI-related uncertainty, while DOCS -27.0% guided weaker on soft market conditions. BIRK -20.7% missed across most key metrics, with analysts focused on margin headwinds, while UAA -20.4% disappointed on margins and FY guidance despite extending its restructuring plan. HIMS -11.4% saw subscriber growth improve, though lower gross margins and weaker EBITDA guidance weighed on sentiment.
M&A activity remained active across selected pockets of the market. BZH +17.9% rejected Dream Finders Homes’ latest acquisition proposal, while Reuters reported several PE firms may be preparing bids for MICC +12.6%. PZZA +11.5% rose on reports that its largest franchisee is working with Irth Capital on a potential take-private transaction, while WEN +9.9% gained after FT reported Trian Partners is seeking outside investors to support a take-private effort. Meanwhile, EBAY +7.8% rejected GameStop’s proposed $56B bid as not credible.
Next week’s primary focus will be Nvidia’s earnings report on Wednesday evening, which is expected to be the key near-term catalyst for AI-linked equities, semiconductor leadership, and broader market sentiment. Retail earnings from Walmart, Home Depot, TJX, Lowe’s, Ross Stores, and Target will also be closely watched for further evidence around consumer bifurcation, discretionary spending resilience, and margin pressure trends.