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Good Morning!
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Now let’s break down what actually moved markets this past week and what to watch next.
Market Recap
This was a volatile week that tested investor nerves early before finishing on solid footing. Stocks sold off sharply to open the week as bond yields surged to alarming levels, then recovered steadily as Iran peace talk signals picked up. By Friday, the Dow hit a fresh all-time high and the S&P 500 notched its eighth straight weekly gain, its longest winning streak since 2023.
The dominant story early in the week was the bond market. Treasury yields continued rising Monday, extending a broader bond market selloff driven by persistent inflation concerns, high energy prices, and heavy government debt issuance. By Tuesday, the 30-year Treasury yield hit 5.20%, a level not seen since 2007, while the 10-year climbed to 4.67%. Traders now see over an 80% chance of a Fed rate hike by late 2026, a sharp shift from expectations of cuts that dominated earlier this year. Rising yields matter because they drive up borrowing costs for consumers and businesses and reduce the appeal of stocks. The bond selloff was not isolated to the U.S. either, with government bond yields hitting multi-year or multi-decade highs in Germany, Japan, and the UK, signaling a global repricing of inflation risk.
Stocks stabilized mid-week as attention shifted to Iran peace negotiations. Secretary of State Rubio said there were good signs that an agreement to end the conflict is within reach, though warned any deal would be unfeasible if Iran pursues measures to permanently control shipping through the Strait of Hormuz. Markets rallied on those comments and held the gains through the end of the week. As one strategist put it, the market is telling you it is far more concerned about missing a peace deal than about the risks of staying invested heading into the weekend.
The other major event of the week was the biggest earnings report of the season. The leading AI chipmaker posted revenue growth of 85% and net income that came in well above expectations, yet shares barely moved as investors had already priced in a strong result. The company also announced an $80 billion stock buyback and a significant increase to its dividend, signaling confidence in its cash generation going forward. The muted stock reaction reflects a broader dynamic playing out this earnings season: the AI trade is no longer being rewarded for beating expectations, it now needs to exceed even the most optimistic forecasts to move the needle.
Finally, this week also marked a significant institutional moment. Kevin Warsh was officially sworn in as the new Federal Reserve chair at the White House on Friday, with President Trump expressing hope for an independent Fed. Warsh's first meeting as chair is scheduled for June, and markets will be paying close attention to his early signals on how he plans to handle an inflation problem that keeps getting stickier.
What's Coming Next Week
The Iran peace process is the single biggest thing to watch. Talks are progressing but no deal has been reached, and oil remains elevated. Any credible breakthrough would immediately ease energy prices, cool inflation expectations, and reduce the chance of a rate hike. Any breakdown would send yields and oil higher and put the eight-week winning streak at risk.
The FOMC minutes from the May meeting are due Wednesday. With the committee deeply divided and a new chair now in place, investors will be looking for clarity on where policy is headed. Any hint that rate hikes are being seriously discussed would likely rattle bond and equity markets.
On the data front, the personal consumption expenditures report, the Fed's preferred inflation gauge, is due Friday. Given that bond markets are already pricing in a high probability of a rate hike, a hotter-than-expected reading could accelerate that shift significantly.
The bottom line: markets are grinding higher on AI earnings momentum and peace deal hopes, but the bond market is sending a clear warning signal about inflation. The new Fed chair is in place, a potential deal with Iran is tantalizingly close, and the next few weeks will likely determine whether this rally has more room to run or whether rising yields finally catch up with stocks.
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