By Jamie McGeever
ORLANDO, Florida, May 5 (Reuters) – The S&P 500 and Nasdaq sailed to new highs on Tuesday, riding the crest of yet another wave of optimism around the artificial intelligence boom. Strong earnings, lower oil prices, and relief that the U.S.-Iran ceasefire is holding also lifted sentiment.
In my column today, I look at the cycle on Wall Street – sky-high expectations for earnings and returns pushing prices ever higher – and ask whether this ‘boom loop’ may also be sowing the seeds of a reversal and potentially turbulent doom loop in the months ahead.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. US says Iran ceasefire holds despite exchange of fire over Strait of Hormuz
2. Trump broke OPEC. He may regret it: Bousso
3. EXCLUSIVE-US prepared for visa sanctions on China over migrants issue, official says
4. Banks buying sovereign debt is lesser of two evils
5. Australia’s central bank set to cool its heels after rapid-fire rate hikes
Today’s Key Market Moves
• STOCKS: New highs for MSCI All Country index, S&P 500, Nasdaq, and Taiwan. MSCI Asia ex-Japan eases back from Monday’s record high, Europe up solidly but FTSE 100 -1.4%.
• SECTORS/SHARES: All 11 sectors in the S&P 500 rise. Tech +1.6%, materials +1.7%. Benchmark semiconductor index (SOX) +4.2% to new record, +55% in last six weeks. Intel +13%, now +170% in last six weeks.
• FX: Dollar little changed, yen slips back to 158/$. India’s rupee at record low, but most emerging FX gets respite – BRL, MXN, HUF all +1%. Bitcoin +2% above $81,000.
• BONDS: UK 30y gilt yield hits 5.79%, highest since 1998. U.S. yields slip 2-4 bps, curve bull flattens slightly.
• COMMODITIES/METALS: Oil -4%, gold +1%.
Today’s Talking Points
* Long bond blues
Of the three major asset classes across developed markets – stocks, bonds and currencies – one is emerging as the clear loser from the global energy shock. Bonds. Short-dated yields are rising in line with price pressures and policy expectations, but perhaps the bigger worry is the long end.
The 30-year UK gilt yield on Tuesday hit 5.79%, the highest since 1998; the 30-year U.S. yield above 5.00% is only 15 bps away from a new 23-year high; Japan’s 30-year yield is less than 15 bps from an all-time high. Pension, insurance and sovereign wealth funds will be tempted, but it seems other investors are demanding even higher returns for taking on the growing fiscal and inflation risks.
* Breakevens breakout
U.S. market-based inflation expectations cooled on Tuesday as oil prices fell, but don’t expect the respite to last. With average gasoline at the pump nudging $4.50 a gallon, and 2026 average oil price forecasts now reaching $100 a barrel, price pressures will likely persist.
The breakeven rate on five-year TIPS this week has topped 2.82%, its highest since August 2022, and the 10-year TIPS breakeven rate has scaled 2.50% for the first time in more than three years. One can question the accuracy of breakevens, but the signal they’re sending is pretty clear.
* Alphabet whoop
Google’s parent company, Alphabet, is on the cusp of overtaking Nvidia as the world’s most valuable company, a position it last held – briefly – a decade ago. Its recent rise has been remarkable, and a clear reflection that AI is no longer a ‘one size fits all’ trade.
Shares are up nearly 45% in the last six weeks, leaping 10% the day after it reported much stronger cloud growth figures and forecasts than expected. Investors are much more discerning on where they think the AI capex binge will bear fruit or not. And right now, Alphabet is the hyperscaler darling.
What could move markets tomorrow?
• Developments in the Middle East
• Energy market moves
• South Korea inflation (April)
• European Central Bank board members Claudia Buch, Philip Lane and Piero Cipollone scheduled to speak
• Euro zone producer price inflation (March)
• Euro zone PMIs (April, final)
• European earnings including Arm Holdings, Novo Nordisk
• UK services, composite PMIs (April, final)
• Canada PMIs (April)
• U.S. ADP payrolls (April)
• U.S. Federal Reserve officials scheduled to speak include Chicago Fed President Austan Goolsbee and St. Louis Fed President Alberto Musalem
• U.S. earnings include Disney, Uber, Apollo, Warner Bros
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; editing by Deepa Babington)
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