The stock market closed the week higher as markets digested a barrage of strong earnings reports from Big Tech firms while weighing the Federal Reserve’s divided policy decision and fresh uncertainty around global oil supply. The Fed was in the spotlight after keeping its policy rate unchanged at 3.50%-3.75% for a third straight meeting, citing uncertainty over the economic outlook.
On the earnings front, Apple reported quarterly numbers that exceeded Wall Street expectations, as the iPhone 17 line continues to impress consumers. Amazon, Google, and Microsoft — demonstrated to investors that heavy spending on AI is paying off in spades. Overall, 70% of companies beat earnings with earnings growth showing a phenomenal 28% increase from last year versus 14.1% expected.
For the week, the S&P gained 0.9%, the Nasdaq Composite advanced 1.1%, and the Dow increased 0.6%.
Future Wealth’s View
The big event this week was Fed Chair Powell’s last press conference. Kevin Warsh is expected to take over on May 15 and is expected to make some significant changes – likely cut down communications by reducing press conferences and become the face of the Fed, instead of other Fed governors going with their statements that has caused some confusion in the markets. But, it increasingly looks like he is not going to jump to cut interest rates.
While it’s unclear what might trigger the decline in stocks that have been on an upward climb over the past four weeks, it is becoming clear that there will be long term effects on the Strait of Hormuz remaining closed. There are three factors that could bring about a sell off in the stock market, in our view. For one, the housing market remains largely frozen as markets expect interest rates to remain elevated. Secondly, while AI capex is booming, broader capex that includes new hires and purchases of physical equipment is down from its peak of over 24% during the pandemic. Finally, consumer spending — which makes up around two-thirds of economic growth, is starting showing signs of slowing down as consumers are starting to feel the pain of the latest inflation surge from the Iran war.
In the meantime,Trump said on Friday this week, that the United States would be taking over Cuba almost immediately, which has prompted a new term for Trump – From TACO (Trump Always Chickens Out) to NACHO – an acronym for “Not A Chance Hormuz Opens.”