Markets ended the week higher as investors followed developments in the Middle East with cautious optimism and AI-related stocks continued report better than expected earnings. The S&P 500 closed the week at a new record, while recording its ninth consecutive weekly gain, the longest such streak since December 2023. Reflecting the ongoing exuberance surrounding AI-related stocks, the tech-heavy NASDAQ gained 8.4% in May, pushing its two-month return to 25%, its largest such gain since 2002. Optimism for a potential peace between the US and Iran, helped bond yields and oil prices moderate from recent highs.
Over the course of the week, Middle East headlines veered from suggesting a peace deal was close at hand, to announcing renewed fighting, and back again. Friday’s headlines suggested the US and Iran had reached a tentative deal to extend the current cease fire by 60 days while renewing negotiations about Iran’s nuclear program. Late Sunday evening, headlines announced the US had struck targets in Iran, which retaliated by attacking sites in Kuwait.
According to Goldman Sachs, Iran’s closure of the Strait of Hormuz has resulted in a cumulative loss of ~1 billion barrels of oil, forcing many countries to tap their strategic reserves. As a result, Chevron CEO Mike Wirth warned at a recent energy conference that the market’s ability to absorb the current supply/demand imbalance has been “drastically diminished” and that physical prices are likely to see further upward pressure in the coming months.
Through Friday, 97% of S&P 500 companies had reported earnings, Thus far, 85% of companies have beaten their consensus estimate, above the five-year average of 78%, and the largest such number since 2Q21.
