Stocks pulled back between one and two percent on Friday after most major indexes closed at record highs the day before. The culprit was most likely an uneventful Trump – Xi Summit in China. Other than the potential for China to begin purchasing oil from the United States, nothing concrete came from the meeting of the two leaders. Under the surface was the potential that any oil deal may keep the Strait of Hormuz closed longer than the markets currently expect, therefore keeping inflation stickier.
· For now, we will attribute the pullback to old-fashioned profit-taking as stocks have advanced between ten and twenty percent from their end of March 2026 close, creating a short-term overbought position. However, pay close attention to the Economic Data listed below, especially that which pertains to inflation, namely U.S. Import and Export Prices as well as the Consumer and Producer Price Indexes. Should these numbers remain elevated, it will be difficult for newly appointed Fed Chair, Kevin Warsh, to cut rates. In fact, there is a greater likelihood that the next move by the Fed will be to raise rates rather than cut. If oil remains at or near these levels, that would be our expectation as well.
· Bond yields pushed higher as the inflation data noted above along with the potential for oil to remain higher may have caused the selloff, especially on Friday. In addition, Fresh fiscal analysis revealed that the U.S. national debt-to-GDP ratio hit 100.2%, with public debt reaching $31.27 trillion against a trailing GDP of $31.22 trillion. While economists noted the milestone is largely symbolic, the reality that the Treasury borrows roughly $50 billion every week kept a persistent upward pressure on structural bond yields. (Source; Northeastern Global News)
· NVIDIA (NVDA), the company at the epicenter of the Artificial Intelligence Revolution, will be reporting Q1 fiscal 2027 quarterly earnings this coming Wednesday, May 20. The consensus is for revenue of between $24.5 and $25.5 billion, of which more than $20 billion will be from data center sales. Investors will also be watching the expected timeline for the release of Nvidia’s next generation Blackwell chip.
Economic Data That Drove Market Sentiment This Past Week…
· Industrial Production, a measure of strength in the manufacturing, factory and utility sectors, rose 0.7% during April (1.4% y/y), after sliding 0.3% in March. Capacity Utilization rose to 76.1% during April from 75.7% in March, remaining unchanged from 76.1% y/y. Manufacturing Capacity rose to 75.8% from 75.4% m/m and versus 75.6% y/y. (Source, U.S. Federal Reserve)
· Retail Sales rose 0.5% in April (4.9% y/y), after jumping 1.6% in March. Spending on Motor Vehicle & Parts rose 1.2% during February (4.0% y/y) after sliding 0.7% in January. Retail Sales Excluding Motor Vehicles & Parts rose 0.7% during April (6.3% y/y), after rising 1.9% during March. Two key components of this report, Sales at Gasoline Stations rose 2.8% during April (20.9% y/y) after rising 13.7% in March as Restaurant and Drinking Place Sales rose 0.6% higher during April (2.7% y/y) after edging 0.1% higher in March. Also of note was the 1.4% rise in sales at electronic & appliance stores (7.6% y/y) as well as the 2.0% drop in sales at furniture & home furnishing stores (-3.6% y/y). (Source, U.S. Census Bureau)
· U.S. Export Prices rose 3.3% during the month of April (8.8% y/y) after climbing 1.5% in March. Import prices rose 1.9% during April (4.2% y/y) after rising 0.9% in March. Agricultural export prices rose 1.6% during April (4.3% y/y), after rising 0.6% during March. Non-Agricultural Export Prices jumped 3.4% during April (9.3% y/y) after rising 1.6% during March. Please note that import and export prices are not affected by tariffs as they are measured prior to taxes. (Source, U.S. Bureau of Labor Statistics)
· Prices at the wholesale level as measured by the Producer Price Index spiked 1.4% during April, this after rising 0.7% in March. Over the past year the PPI has risen 6.0%, up from 4.3% in March. Energy prices jumped 7.8% during April (22.7% y/y) after rising 10.1% in March. Finished food prices rose 0.2% during April (1.8% y/y) after easing 0.6% in March. Excluding food and energy, the core PPI rose 0.7% during April (4.8% y/y), after rising 0.3% in March. Prices for Intermediate Goods rose 2.7% during April (9.4% y/y) after rising 2.8% in March. (Source, U.S. Bureau of Labor Statistics)
· Inflation at the Retail Level as measured by the Consumer Price Index rose 0.6% during April (3.8% y/y), after rising 0 9% during March. The CPI has fallen from a y/y high of 9.1% during June 2022 but remains stubbornly elevated relative to the Fed’s 2.0% target. Energy prices rose 3.8% during April (17.9% y/y) after spiking 10.9% in March. Food at home prices rose 0.7% (2.9% y/y) during April after sliding 0.2% in March. The cost of shelter rose 0.6% during April (3.3% y/y), after rising 0.3% during March. Excluding food and energy, the core CPI rose 0.4%, after rising by 0.2% during March. Over the past year the core CPI has risen 2.8%, well below the September 2022 peak of 6.6%. (Source, U.S. Bureau of Labor Statistics)
· Sales of Existing Homes rose 0.2% (0.0% y/y) to a Seasonally Adjusted Annualized Rate (SAAR) of 4.02 million units during April from 4.01 million during March. According to the National Association of Realtors (NAR) total housing inventory at the end of April was 1.47 million units, up from 1.39 million units in March and by 1.4% y/y. Unsold inventory rose to 4.4 months, up from 4.2 months during March. The report also noted that the median price for all existing homes rose 2.1% (0.9% y/y) to $417,700 in April from $409,100. (Source, National Association of Realtors)
Economic Reports scheduled to be released this week, include the following – on Thursday, Initial Claims for Unemployment Benefits along with April Housing Starts and Building Permits; and, on Friday, April U.S. Index of Leading Economic Indicators (LEI) as well as the Final Reading on May Consumer Sentiment from the University of Michigan.
Several potentially market moving companies are scheduled to report earnings, to include Baidu (BIDU), Home Depot (HD), Analog Devices (ADI) Target (TGT), TJX (TJX), NVIDIA (NVDA), Lowe’s (LOW), Intuit (INTU), NetEase (NTES), Ross Stores (ROST), Take-Two Interactive (TTWO), Workday (WDAY), Walmart (WMT) and Deere (DE).