The S&P 500 ended the week effectively unchanged while most other equity indices closed lower, pressured by higher yields stemming from “hotter” than expected inflation reports. Yields across the Treasury curve rose as investors grew increasingly concerned about the economic impacts of higher inflation. At the shorter end of the curve, the 2-year yield closed at 4.08%, its highest level in 14 months. The benchmark 10-year yield closed at 4.60%, its highest level in a year. And at the long end of the curve, the 30-year yield closed at 5.12%, its highest level since 2007.
Energy prices remained elevated as Middle East tensions showed no signs of abating, further exacerbating inflation concerns. On Thursday, Iran seized one vessel and sank another displaying its determination to keep the Straight of Hormuz closed.
Higher inflation present a challenge for the Fed which entered the year expecting to cut rates at least twice in 2026. On Wednesday, Kevin Warsh was narrowly confirmed by the Senate, 54-45, marking the narrowest margin of confirmation ever for a Fed Chair. Warsh will take the reigns with the Fed facing considerable uncertainty. Fed funds futures ended the week pricing in a 50% change of a rate hike by year end and a 63% chance of a rate hike by January 2027.
Through Friday, 91% of S&P 500 companies had reported earnings with 80%beating their consensus estimate. According to industry group FactSet, consolidated earnings growth is expected to be 27.7%, the highest level since 4Q21. The strong growth marks the 6th consecutive quarter of double-digit earnings growth, reinforcing the generally positive sentiment regarding corporate fundamentals.
