Weekly Commentary 5 May 2026
Summary
Global equities rose 0.76% on the week and 10.15% in April, with the US leading thanks to exceptionally strong and broad‑based earnings
The ‘Magnificent Seven’ delivered across-the-board earnings beats, though market reactions were mixed; the group finished the week up 0.45% amid excitement over Artificial Intelligence (AI)‑driven demand offset by scrutiny of rising expenses and investment
AI‑related capital expenditure remains extremely strong, with multiple investment categories hitting record highs and high‑tech’s share of US non‑residential capex reaching a record 55%
Ten major central banks met with few surprises; all held rates, though the US Federal Reserve (Fed) saw unusual dissent
Markets expect US cuts while the European Central Bank (ECB) and Bank of England (BoE) face pressure to tighten despite weaker economies
US labour‑market data remains robust, with weekly jobless claims hitting their lowest level since 1969 last week, raising the possibility of a stronger‑than‑expected April employment report due this Friday.
Market Review
US equities lead on earnings strength
Global equities ended the week up a muted 0.76%, but April closed with a striking 10.15% gain - the strongest monthly return since November 2020. The US continues to lead the rally, supported by broad‑based and exceptionally strong earnings. With most companies now having reported, the market is on track for a sixth consecutive quarter of double‑digit earnings growth. Analyst expectations for earnings growth over the next year rose to 21.2% last week, helping to justify the rebound following the March sell‑off around the Iran conflict.
The focus last week was on the ‘Magnificent Seven’, with five of the seven mega‑cap tech names reporting. All five beat expectations on both revenue and earnings, though market reactions were mixed as investors weighed AI‑related demand against rising expenses/investment. The group showed wide dispersion and ended the week up 0.45%.
A key takeaway is that AI‑driven capital expenditure remains extremely strong, with no signs of slowing, and external capital‑spending indicators are red hot. Nondefense capital goods orders (excluding aircraft) hit fresh record highs in March, continuing the strong uptrend since 2024. Intellectual property (including software) and business‑equipment investment (including semiconductors and servers) also reached record highs in the first quarter and have been rising for five years. Software, information‑processing equipment, and research and development have likewise reached fresh record highs this year. Growth in information‑processing equipment has steepened significantly amid the AI‑driven investment boom, pushing a high‑tech’s share of total non‑residential capital spending to a record 55%.
Few surprises from central banks
There were a total of 10 central bank meetings last week including the Fed, ECB, the BoE and the Bank of Japan (BoJ). All face renewed inflation challenges. The key question is, of course, how much inflation is coming down the pipeline and how central banks will respond.
The Fed has a dual mandate explicitly targeting full employment as well as inflation, this makes it easier for the Federal Open Markets Committee (FOMC) to prioritise the labour market over inflation and to delay interest rate hikes. It helps that the US is about half as vulnerable to oil shocks as Europe or Asia. Markets still anticipate interest rate cuts in the US this year, while the ECB and BoE are expected to raise rates. However, both the UK and eurozone have weaker economies, and the transmission from supply‑side inflation (energy) to demand‑side inflation (wages and goods) is less clear. Workers have less bargaining power than in 2022, and firms may struggle to pass on costs to already‑pressured consumers. This may make policymakers more cautious about tightening further, even as markets price in additional hikes.
The Fed, ECB, BoE and BoJ all held rates steady last week and there were few surprises with the BoE, ECB and BoJ all hinting at their willingness to potentially raise rates when necessary. The Fed, however, saw an unusually high number of dissenters: one voting for a rate cut rather than a hold, and three opposing the inclusion of language implying a continued easing bias. This was notably the final FOMC meeting chaired by Powell and marked the highest number of dissents during his tenure.
While Powell’s term as chair ends in May he has vowed to remain on the Board of Governors for an unspecified period (an uncommon choice, as outgoing chairs typically step down entirely). He cited political interference as his reason for remaining. Powell’s term on the Board runs until January 2028.
The Week Ahead
US employment report:
The US labour market has remained robust this year, with job growth at larger companies offsetting cooling labour demand among smaller businesses. The unemployment rate is expected to hold at 4.3% in April. Weekly labour‑market data for April has also been remarkably strong. Initial unemployment claims fell last week to their lowest level since 1969, indicating that layoff activity remains exceptionally subdued. Continuing claims are also declining. This strength in the high‑frequency data raises the possibility of a stronger‑than‑expected April employment report from the Bureau of Labor Statistics.
