Encouraging U.S. Economic Data Calms Inflation Worries
Markets ended Thursday mostly in positive territory as investors responded to a wave of economic data that painted a more reassuring picture of inflation. The U.S. Producer Price Index (PPI) fell by 0.5% in April, exceeding analyst expectations and signaling that inflationary pressures may be easing. This downward move followed a similarly tame Consumer Price Index (CPI) report earlier in the week, adding further weight to the view that the Federal Reserve might not raise interest rates in the near term.
Despite the favorable inflation news, signs of slowing consumer momentum emerged. Retail sales edged up just 0.1% in April, suggesting that American consumers are beginning to tighten their wallets, particularly in the discretionary spending segment. The mixed signals on inflation and consumption prompted a drop in U.S. Treasury yields, with the 10-year yield falling to 4.45% and the 2-year to 3.97%. Lower yields boosted interest rate-sensitive sectors like utilities and real estate, which led market gains. The S&P 500 managed to rise for a fourth consecutive session, although the Nasdaq broke its winning streak as technology and other growth-oriented stocks struggled to keep pace.
Corporate Earnings Surprises Fuel Investor Optimism
Tech and Retail Names in Focus
Investor attention also turned to the latest round of corporate earnings, where several major players exceeded expectations. Cisco Systems delivered a strong report driven by robust demand in its networking division, which propelled the stock higher. Walmart also posted better-than-expected results, although company executives warned that upcoming tariffs could result in higher consumer prices in subsequent quarters. Market activity was particularly notable following the proposed acquisition of Foot Locker by Dick’s Sporting Goods. Foot Locker shares surged on the news, while Dick’s experienced a decline, reflecting market concerns over the strategic fit and financial implications of the deal.
Overall, the first-quarter earnings season has been largely positive. Nearly 80% of companies within the S&P 500 index have reported results that surpassed consensus estimates. Earnings growth is currently tracking above 13%, an encouraging sign despite some headwinds from tariffs and moderating consumer demand. Analysts remain confident in their projections for mid-single-digit earnings growth in 2025, supported by a steady labor market and indications that global trade tensions may be easing.
Global Market Snapshot
Asian Markets Mixed on Growth and Policy Expectations
On the global front, Asian markets showed mixed results on Friday. Japan’s Nikkei 225 slipped by 0.5% after the country’s first-quarter GDP data came in below expectations, reflecting a slower-than-anticipated economic recovery. Hong Kong’s Hang Seng index fared even worse, dropping more than 1% due in part to a disappointing earnings report from Alibaba. The Chinese e-commerce giant missed revenue forecasts, which sparked a decline of over 5% in its stock. Mainland Chinese markets followed a similar downward trajectory. On a more positive note, Australia’s ASX 200 index bucked the regional trend by rising 0.6%. Optimism surrounding a potential interest rate cut by the Reserve Bank of Australia next week helped lift investor sentiment.
Europe and U.S. Markets Digest Mixed News
In Europe, stock markets closed marginally higher as investors weighed corporate earnings and trade policy developments. Healthcare stocks saw gains after the U.S. signaled a possible cap on drug prices, with Bayer and Sanofi both benefiting from the news. Deutsche Telekom’s stock also rose after the company raised its financial guidance. However, not all earnings news was positive. Siemens and Allianz both saw their shares decline following lackluster financial updates.
Back in the U.S., equity futures were flat in overnight trading. Market sentiment was underpinned by optimism about the U.S.-China trade agreement and easing inflation concerns. However, this was counterbalanced by some disappointing after-hours movements, notably a drop in Applied Materials’ stock after the company released a weaker-than-expected revenue outlook.
Currencies and Commodities Update
Currency markets also reflected evolving economic narratives. The U.S. dollar index declined slightly to around 100.6 by Friday, capping off a week of volatile trading. Early strength from hopes of a U.S.-China trade truce faded as softer domestic economic data took center stage, reinforcing expectations of future interest rate cuts by the Federal Reserve. Against the euro, the dollar remained on the back foot, with the EUR/USD exchange rate rising to 1.1201. This uptick suggested that traders were adopting a more cautious stance amid concerns over slowing U.S. consumer activity and global trade negotiations.
Oil markets stabilized during Friday’s Asian trading session following steep losses the previous day. These earlier declines were driven by growing speculation about a potential U.S.-Iran nuclear agreement, which raised concerns about increased oil supply from Iran. Meanwhile, the International Energy Agency projected stronger-than-expected growth in global oil supply. Additionally, the soft U.S. producer price data offered another sign that inflation may be moderating, helping to temper fears of aggressive central bank tightening.
Geopolitical Developments: NATO Eyes Higher Spending
In geopolitical news, U.S. Secretary of State Marco Rubio announced that all NATO member countries are expected to agree on a new defense spending target of 5% of GDP by the time of the 2025 NATO Summit in June. This marks a significant increase from the current 2% benchmark. Germany and several other key member states have already expressed support for this higher target, reflecting growing concerns about global security and the need for greater military readiness in an increasingly complex geopolitical environment.
Equities in Motion
Company Highlights
Several high-profile companies made headlines this week for a range of reasons. Bayer is reportedly preparing to settle lawsuits related to its Roundup weedkiller product in Missouri. The company has paid out approximately $10 billion in claims and continues to face over 67,000 pending cases. If settlements fail, Bayer may consider putting its Monsanto unit into bankruptcy to manage liabilities more effectively. The legal strategy includes seeking a Supreme Court ruling that could potentially limit future damages.
Applied Materials disappointed investors after missing second-quarter revenue estimates, largely due to reduced sales in its core semiconductor systems segment. The weakness stemmed from U.S. export restrictions to China. Despite the revenue shortfall, the company posted a stronger-than-expected adjusted profit per share and offered a third-quarter revenue forecast that was largely in line with market expectations.
Cava Group had a strong quarter, reporting a 28.1% rise in first-quarter revenue to $331.8 million. The gains were driven by robust customer demand and a 10.8% increase in same-store sales. Management reaffirmed their full-year sales and margin targets, raised their forecast for new restaurant openings, and noted that no further price increases were planned thanks to efficient supply-chain management.
Alibaba’s quarterly performance fell short of expectations, with revenue rising only 7% to 236.5 billion yuan. Both its e-commerce and cloud computing divisions underperformed, underlining the impact of weak consumer spending in China and lukewarm demand for AI-related services.
Siemens reported second-quarter profit of €3.24 billion, a 29% increase year-over-year, alongside a 7% rise in sales to €19.76 billion. The company maintained its full-year sales guidance of 3% to 7%, despite macroeconomic uncertainty. Notably, revenue from its automation division fell by 5%, but this was offset by strength in its Smart Infrastructure and Mobility units.
Thyssenkrupp delivered disappointing results, with operating profit plunging 90% to €19 million in the second quarter. The decline was attributed to global economic uncertainty and tariff-related impacts on its steel and automotive operations. Nonetheless, the company expressed confidence in its outlook, projecting full-year adjusted EBIT between €600 million and €1 billion. Strong performance from its submarine division, which saw a 24% profit increase, provided a much-needed lift.
Boeing secured a $14.5 billion contract with Etihad Airways to supply 28 aircraft powered by GE engines, marking a significant boost to U.S.-UAE aviation ties. The announcement follows Boeing’s massive $96 billion deal with Qatar Airways, which ordered 160 jets plus options for 50 more during President Trump’s Gulf visit, reinforcing the company’s leadership in widebody aircraft sales.
Fiserv shares fell over 16% after the CFO revealed that growth in its Clover point-of-sale platform is expected to remain subdued in the second quarter, mirroring the slower pace observed earlier in the year. Investors reacted negatively to the tempered growth forecast, as it highlighted difficulties in converting non-Clover clients and raised concerns about a potential plateau in this key business line.
Vistra Corp made headlines with its $1.9 billion acquisition of seven natural gas-fired power plants from Lotus Infrastructure Partners. The acquisition adds nearly 2,600 megawatts of capacity and is aimed at meeting the rising electricity demands driven by data centers and AI infrastructure expansion, while supporting Vistra’s broader strategy to expand its energy portfolio and deliver strong returns.
CVS Health submitted a bid to acquire a significant portion of Rite Aid’s assets, including stores and patient data in Washington, Oregon, and Idaho. Rite Aid is currently preparing to close operations following its second bankruptcy filing. Competing offers have been made by Walgreens and Kroger, who are also eyeing the assets while committing to retain most of Rite Aid’s workforce.
Coinbase faced a challenging week after a cyberattack exposed data from a small number of users. Although no login credentials were compromised, the company expects to post losses between $180 million and $400 million. Coinbase has terminated employees linked to the breach, reimbursed affected users, and is now under investigation by the SEC over its user metrics. The legal troubles cast a shadow over its anticipated entry into the S&P 500.
Berkshire Hathaway revealed updates to its portfolio, doubling its stake in Constellation Brands to 12 million shares valued at $2.2 billion. The conglomerate also reduced its holdings in Citigroup, Bank of America, and Capital One, continuing its trend as a net seller for the tenth consecutive quarter. Berkshire’s cash reserves reached $347.7 billion in March, and plans for CEO succession are reportedly set for 2026.
Wolfe Research upgraded Pinterest to an “Outperform” rating with a $40 price target. The firm cited a more stable macroeconomic environment, innovative product launches such as Performance+, and an appealing valuation as key reasons for its bullish stance. It also praised the company’s recent partnerships and improved earnings performance.
Wolfe Research also revised its target for Boeing, raising it to $230 per share following the $100 billion Qatar Airways order and growing confidence in Boeing’s cash flow and production outlook. The firm expects the recent deals to contribute positively to upcoming financial results, with more optimism ahead of the Paris Air Show in June.
What’s Next: Key Economic Data and Events
Looking ahead, investors are focused on today’s release of April’s housing starts and building permits. These figures are expected to provide fresh insights into construction activity and the overall health of the real estate market. Additionally, the preliminary reading of the University of Michigan’s consumer sentiment index for May is due. This report will be closely watched as it could significantly influence investor outlook and expectations surrounding future monetary policy decisions.
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