WEEKLY SUMMARY: Mega-caps stocks outperform cyclicals & small-caps
Stocks recorded mixed returns this week as attention focused on earnings reports. 35% of S&P 500 Index companies (or 44% of its market capitalization) were scheduled to release results during the week. Meta and Microsoft jumped while other FAANGs were mixed. Cyclical sectors generally performed poorly, however, as investors weighed several new signs of an economic slowdown. Early in the week, several measures of regional manufacturing activity came in well below expectations and indicated that factories were cutting back on production in April. US durable goods orders excluding aircraft and defense fell 0.4%. US retail inventories rose 0.4% for the month, more than expected. US GDP in the first quarter came in at 1.1%, well below consensus expectations of around 2%. Renewed turmoil in the banking industry also heightened fears of a slowdown and possible recession. On Friday morning, First Republic’s stock fell further after CNBC reported that the FDIC was planning on taking the bank into receivership that evening. U.S. Treasury yields modestly decreased. Concerns increased about the approaching debt ceiling date and negotiations for raising it. Shares in Europe fell as fears that interest rate increases might tip the economy into recession intensified. Chinese stocks ended mixed ahead of a five-day holiday as Beijing reaffirmed its supportive policy stance. Amid a very volatile week, Bitcoin was notably higher, pushing back above $29,000...
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The Nasdaq Composite led gains, driven by strength in mega-cap tech firms benefiting from AI-related spending. Market gains were narrow — the S&P 500 rose even though most sectors fell, and the equal-weighted index lagged by 2.7%. About two-thirds of S&P 500 companies have reported earnings and 83% are beating expectations. Results from the “Magnificent Seven” were mixed: Microsoft, Apple, and Meta fell post-earnings, while Amazon and Alphabet rose. NVIDIA’s shares surged, briefly pushing its market value above $5 trillion. U.S. President Donald Trump and China’s President Xi Jinping agreed to a one-year trade truce, easing tensions between the two nations. The deal included U.S. tariff reductions, China suspending export controls on rare earths, and resuming purchases of U.S. agricultural goods. Meanwhile, the Federal Reserve cut interest rates by 25 basis points to 3.75%–4.00%, as expected, but signaled caution on further cuts.


