Weekly Comment: One streak keeps going, while another ends

In our latest Weekly Comment, Head of Fixed Interest Research Richard Carter, CFA provides his insights into the most recent market developments, including Nvidia and Walmart’s recent results, the impacts of the Middle East ceasefire and is the AI trade helping the US stock market to continue its growth? 

Important information - This is a marketing communication provided for information purposes only and does not constitute independent investment research, investment advice or a personal recommendation.

Market overview

Streak#1

Eight. That’s the number of weeks in a row the main US stock market has now risen. The usual suspects that have driven the index’s longest winning streak since 2023 have once more been at work—the artificial intelligence (AI) trade, a strong Q1 reporting season, and a, so far, enduring ceasefire in the Middle East.

The AI trade: Last week it was the turn of AI flag bearer Nvidia to report Q1 numbers, the last of the Mag 7 Big Tech stocks to do so. As well as posting stronger-than-expected revenues, the chipmaker upped its quarterly dividend to US$0.25 per share from US$0.01 and committed a further US$80bn for share buybacks. True, the share price response was relatively muted, but this may partly be down to the stock having already gained 18% year-to-date (YTD) ahead of the Q1 results release. Importantly, the world’s biggest company, which lies at the heart of the AI story, did not disappoint. The AI trade is alive and well it seems.

A good season: Nvidia was not the only bellwether stock to report. Retail giant Walmart also reported better-than-expected earnings and raised its full-year estimates too.  Earnings beats have not been the preserve of Big Tech. As for how strong the reporting season has been, rewind to the end of March. Back then, Mag 7earnings were forecast to grow an already impressive looking 24.3% in 2026, according to FactSet. With Nvidia’s results completing the full set of seven, the data provider now expects earnings to grow 34.9% this year. And it is not just tech that gets an upgrade. The non-Mag 7 constituents of the main US market are now expected to grow their earnings by 17.9% compared to 14.7% in March. 

Middle East ceasefire: Peace deal talk took on a more positive tilt towards the end of the week after both the US and Iran confirmed progress had been made on a number of sticking points. Iran did signal that a peace deal is not imminent but, encouragingly, the country’s foreign minister was despatched to Qatar to get a deal over the line.

It remains to be seen if a peace deal can be secured but if current talks do have legs, they could provide a further boost for stock markets. Good timing too. For with the Mag 7’s latest results all in and the Q1 reporting season largely complete, the US stock market could perhaps do with another positive tailwind to keep that winning streak going.

Streak#2

As for the streak that has come to an end, all will be revealed at the end of this article.

Weekly market moves and economic news:

The MSCI All Country World Index (MSCI ACWI) ended the week up 1.3%, bringing the YTD gain to 10.5%.

United States:

Unlike previous weeks, the main US stock market underperformed the global index. Nevertheless a 0.9% weekly gain means YTD the US market is now up 9.7%. In another trend reversal, value (+1.8%) and small caps (+2.7%) outperformed growth stocks (+0.5%). The YTD figures now stand at +5.8% for growth; +12.8% for value and +16.2% for small caps.

US Treasuries were mixed.  The yield on the 10-year Treasury ended three basis points lower at 4.56% (up 39 basis points YTD); while the 2-year Treasury yield rose five basis points to 4.12% (up 65 basis points YTD). This might reflect mixed economic data. May’s Flash Purchasing Managers’ Index (PMI) held steady at 51.7 after manufacturing activity, which reached its highest level in four years, offset a soft reading from the services sector.  The data also showed that input costs and selling prices both rose at their fastest pace since 2022, while overall employment fell. And for the third successive month, the University of Michigan’s Consumer Sentiment Index fell. Chief among the reasons for the drop in confidence? Cost-of-living concerns. Little surprise then that US Treasuries were largely flat on the week.

United Kingdom:

UK large caps regained ground lost in recent weeks courtesy of a 2.8% rise (+7.0% YTD). Mid-caps kept pace with their larger siblings, rising 2.6% (+4.5% YTD). Sterling and gilts also had good weeks. Sterling strengthened to US$1.34 compared to US$1.33 previously. Meanwhile, the yield on the 10-year gilt dropped 27 basis points to 4.90% (up 42 basis points YTD).

Sentiment towards gilts was helped by better-than-expected inflation numbers— price growth in April came in at 2.8% compared to 3.3% in March and expectations of 3%. A commitment from Andy Burnham, would-be Labour leader and Prime Minister, that he would stick to the existing government’s fiscal rules were he to win any leadership contest would have helped calm fears of a potential loosening of the public purse strings. Similarly, a rise in the UK unemployment rate to 5% for the three months to March, compared to 4.9% recorded for the three months to February, may have helped allay concerns that any future interest rate hikes by the Bank of England to combat inflation may not be as severe or as imminent as previously thought.

Europe ex U

European stocks were the week’s clear winners. The MSCI Europe ex-UK Index gained 3.2% (+6.9% YTD) on the back of growing hopes of a possible peace deal between the US and Iran. As an energy importer, Europe has been viewed as being particularly vulnerable to global inflationary forces unleashed by the Middle East conflict. It follows then that Europe stands to benefit from a lasting settlement. At the national level, Germany’s main stock market rose 3.9% (+1.6% YTD); France’s +2.4% (+1.5% YTD); Italy’s + 2.3% (+13.0% YTD); and Switzerland’s +2.3% (+4.8% YTD).

As for European government bonds, the prospect of an end to the conflict outweighed the news that producer price inflation for April reached 1.7%, the highest level since May 2023—the yield on the 10-year German Bund fell 13 basis points to 3.04% (up 18 basis points YTD). The euro was unmoved however at US$1.16.

And the streak coming to an end

For the last few weeks and months, not a Weekly Comment has gone by without a mention of the name of the 45^th and 47^th President of the United States. A quick press of Ctrl F confirms the streak has now come to an end. No promises about future iterations but, who knows, maybe a new winning streak will get going: successive Weekly Comments that do not mention the 45^th and 47^th President by name.

Important information

This material is a marketing communication provided for information purposes only and does not constitute independent investment research. References to financial instruments are for general information purposes and are not subject to requirements applicable to independent investment research.

Any references to securities or financial instruments should not be regarded as a personal recommendation, or as an offer, solicitation or invitation to buy or sell any financial instruments. The views expressed are those of the authors at the time of publication and are subject to change. Past performance is not a reliable indicator of future results.

This material does not constitute tax, legal or accounting advice. You should seek independent professional advice appropriate to your individual circumstances before making any financial decision or engaging in any transaction.

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