Investors have entered a new week following a strong start in May and a wave of earnings reports from five of the "Magnificent Seven" tech giants last week. A busy week filled with labor market data and another batch of significant first-quarter earnings reports still holds much anticipation. The S&P 500 index closed up 0.3% on Friday, posting a weekly gain of nearly 1%. The tech-heavy Nasdaq index rose 0.9% on Friday, accumulating a 1.1% gain over the past five trading days. Both major indices closed at record highs on Friday. The Dow Jones Industrial Average fell 0.3% on Friday but still managed a 0.5% weekly gain.
Renewed hopes for peace between the US and Iran boosted market sentiment, with prospects for resumed shipping through the Strait of Hormuz and signs of progress toward an agreement. Consequently, crude oil prices fell alongside the US dollar, while gold prices showed little change. Over the weekend, the US President stated that starting Monday, the US would guide vessels not involved in the Iranian conflict through the Strait of Hormuz. He also described discussions with the Iranian government as "very positive," following Tehran's receipt of Washington's response to its latest proposal to end the war. Although uncertainty remains, these developments could pave the way for smoother energy flows and a potential agreement.
This latest news added momentum to a month-long stock market rally. Largely setting aside concerns about the economic impact of the conflict, traders have been buoyed by signs of resilient corporate earnings, driving US stocks to their best monthly performance since 2020. Efforts to transform a fragile ceasefire into lasting peace, combined with signs of a strengthening US economy, propelled the S&P 500 to its fifth consecutive weekly gain.
Key events on the economic calendar include the focus on Friday's April jobs report. After months of volatile employment data, including 178,000 jobs added in March, economists again predict relatively weak job growth for the month, forecasting only 60,000 new positions. Additionally, investors will receive business condition data from the Institute for Supply Management (ISM) on Tuesday, employment figures from ADP and Challenger, Gray & Christmas on Wednesday, and the University of Michigan's Consumer Sentiment Index on Friday.
On the earnings front, major semiconductor manufacturers will report quarterly results, offering another perspective on AI-related business conditions. Lattice Semiconductor reports on Monday, followed by Advanced Micro Devices on Tuesday and Arm on Wednesday. Also noteworthy are earnings from Palantir, media company Paramount Global, Danish pharmaceutical giant Novo Nordisk, and a host of other major corporations.
Profit growth suggests an economy poised to "thrive" rather than just "survive." While the US may be engaged in conflict, little evidence of this is apparent in the stock market. The S&P 500 and tech-concentrated Nasdaq hit multiple record highs last week. Microsoft, Amazon.com, Meta Platforms, Inc., and Alphabet have collectively increased their planned AI expenditures. Earnings strength extends beyond the tech sector.
An analyst from Capital.com stated, "The US earnings season shows companies continue to generate massive profits." He added that markets are pricing in a peaceful resolution to the Middle East conflict, expecting the Federal Reserve to largely "ignore" the energy crisis rather than respond with rate hikes, and that profit growth can not only survive but thrive amid such shocks. LPL Financial's chief technical strategist noted that so far, not only have earnings largely exceeded expectations, but corporate commentary has also been more constructive than anticipated, even in the face of weak survey-based economic data.
While the tech sector continues to provide much of the market's momentum, the head of US equities at UBS pointed out that the other 491 stocks in the S&P 500, excluding the "Magnificent Seven," Broadcom, and Micron, are also expected to deliver solid performance and growth. He stated, "The macro drivers for a bull market remain intact."
With first-quarter earnings from semiconductor companies pending, robust reports from five of the "Magnificent Seven" during a strong year for large-cap tech have further bolstered investor confidence in the AI trade, especially as spending by the world's largest companies is expected to continue soaring. This week, investors will see another piece of the puzzle: the semiconductor industry underpinning the AI boom. If the "Magnificent Seven" provide a buyer's perspective, semiconductor design acts as a barometer for the supply side of AI infrastructure. This sector has remained a market bright spot even when others were impacted by the Iran conflict. The Philadelphia Semiconductor Index surged over 40% in April, its best monthly performance since February 2000, extending the record-breaking rally fueling the AI trade. Advanced Micro Devices' stock rose 70% in the month leading up to its report, while Lattice gained 25% and Arm climbed 40%.
The chief strategist at Interactive Brokers noted the sector's overheated performance makes it vulnerable to a potential pullback but added that if key components of the semiconductor index continue to deliver positive surprises, it becomes difficult to bet against it.
Perhaps the biggest question surrounding AI is the extent of its impact on the US labor market. Opinions vary widely, from predictions of AI rendering many white-collar workers obsolete to assessments suggesting minimal cause for concern. Investors will receive more data this week to help answer this question, with Friday's jobs report taking center stage. If the pattern of alternating job gains and losses over the past ten months persists, the forecast of 60,000 new jobs for Friday could actually signal a decline for the month, a confusing pattern that has challenged investors. Nonetheless, economists believe the data is pointing in the right direction, and Friday might show a solid performance.
A senior US economist from BNP Paribas indicated that weekly and daily data from ADP show "signs of acceleration," with weekly jobless claims falling to their lowest level since 1969. Furthermore, in industries more affected by AI, a "hiring lull" has not translated into widespread unemployment—a sign he characterizes as "using AI to expand the labor market pie." He wrote, "We suspect positive labor market outcomes are underappreciated, although we also acknowledge a high degree of uncertainty given evolving geopolitical risks."
Ahead of Friday's jobs report, investors will also receive JOLTS data on job openings, quits, and layoffs on Tuesday; ADP's private sector employment data on Wednesday; and the Challenger, Gray & Christmas report on layoffs on Thursday, constituting a data-intensive week for labor market insights. The economist concluded, "The economy is not a zero-sum game. AI tools do not simply replace a fixed supply of workers and the tasks they perform. Instead, forward-looking expectations of stronger economic opportunity and performance generate more demand in the present. The wealth effect boosts spending, investment recovers, and this, in turn, translates into greater demand for labor."