U.S. Futures & World Markets

Happy Soul Train Friday! Stocks are modestly higher as we head into the long Memorial Day weekend. There isn't much in the way of macro news. Encouraging headlines on Iran continue to flow in, but many details still need to be ironed out before we see a formal agreement. The market has largely priced in some type of deal already, so the bigger question is what the next catalyst will be to push stocks meaningfully higher from here.

Kevin Warsh will be sworn in today as new Chairman of the Federal Reserve. He won't be able to ease into this job. Inflation remains stubbornly high, albeit with strong earnings growth. The labor market continues to show resilience, though the longer-term impact AI could have on employment remains a major question mark. New Fed chairs always get tested early — we'll see what's in store for Chairman Warsh.

As we head into the holiday weekend, it's also worth remembering what Memorial Day is really about. Beyond the barbecues and extra day off, it's a time to honor the men and women who gave their lives serving this country. We're lucky to enjoy the freedoms we have because of those sacrifices. A genuine thank you to all who have served, and especially to the families who have sacrificed along the way.

S&P Futures vs. Fair Value: +30.00  |  10-Year Yield: 4.52%

CORE Headlines

Charts & Data

IT capex now more than a third of all S&P 500 capex. Torsten Slok, Apollo: "The S&P 500 IT sector's share of total index capex has surged to a record-high 35%, as hyperscalers race to build out AI infrastructure at unprecedented scale." The AI buildout is now dominating corporate capital allocation across the entire index.

Labor market holding steady — low hire, low fire. FRED via Daily Chartbook: both initial and continuing jobless claims continued to point to a low hire/low fire labor market. No signs of stress despite the energy shock.

Q2 GDP tracking 4.3%. Augur Infinity via Daily Chartbook: the Atlanta Fed's GDPNow model estimate for Q2 GDP growth improved to 4.3% from 4.0% on May 14. The US economy is accelerating, not slowing.

No energy bailout coming. Dario Perkins, TS Lombard via Daily Chartbook: "Are we going to see a big fiscal response to the energy crisis? It appears there has been a strong presumption that more bailouts are on the way. We think this narrative is overblown." Governments are unlikely to replicate the post-Ukraine European energy subsidy response.

US debt at WWII levels — but without the post-war boom. Deutsche Bank via Daily Chartbook: "We're currently sitting at debt levels not seen since WWII — but this time, without the post-war boom." The fiscal situation is a slow-moving but real constraint on long-term growth.

Earnings growth always brings rates up with it. Ian Harnett, Absolute Strategy Research via John Authers, Bloomberg: "Over history, whenever earnings have risen like this, they have always brought interest rates up with them." Strong earnings and higher rates tend to coexist — that's not necessarily bad for stocks.

Rates volatility matters for stocks even when rates level is stable. Deutsche Bank via Daily Chartbook: "A pickup in rates volatility matters for equities, even if the level of rates itself is not the key. The MOVE index is worth watching." Calm rates = good for stocks; volatile rates = difficult backdrop.

AAII bull-bear spread turned negative. AAII via Daily Chartbook: AAII sentiment remains a tug-of-war between bulls and bears. Bears pushed the bull-bear spread negative over the past week — another sign of the "wall of worry" this rally is climbing.

Momentum exposures at 95th percentile — works both ways. Morgan Stanley Prime Brokerage via Daily Chartbook: "Momentum exposures very elevated, standing at the 95th percentile." It's useful to remember that momentum works in both directions.

Narrow leadership historically not an automatic sell signal. HBM Strategies via Daily Chartbook: "Narrow leadership can last longer than most expect. When cap-weighted S&P 500 outperformed equal-weighted by 4+ percentage points over 6 weeks, forward returns were still strong. A narrow rally is a warning sign for market breadth, but historically it has not been an automatic sell signal."

Hybrid work permanently reduced transit ridership to ~80%. Torsten Slok, Apollo: "Transit ridership in NYC and London has stabilized at roughly 80% of pre-pandemic levels, as hybrid and remote work have permanently reshaped how often people ride the rails." A useful proxy for the permanent structural changes in urban commercial real estate.

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