Earnings and semiconductors power markets

Key takeaways

• Equities extend gains as earnings and semiconductors lead markets higher
• Consumer confidence remains subdued despite economic resilience
• Inflation is easing gradually but remains above the Fed’s target

Despite the shortened holiday week, markets had plenty to digest.

Risk assets remained well supported, driven by strong earnings results and continued enthusiasm around artificial intelligence. At the same time, signs of de-escalation in the Middle East helped improve sentiment, while investors continued to seek the relative safety of U.S. Treasurys, pushing yields lower.

The S&P 500 rose for an eighth consecutive week, supported by another strong earnings season. With 94% of companies having reported, first-quarter earnings are tracking a positive surprise of roughly 16%, marking the strongest earnings beat since the first quarter of 2021.

Semiconductor stocks remained a key market driver. Investor enthusiasm has increasingly shifted toward memory-related companies, with the Philadelphia Semiconductor Sector Index up more than 60% quarter-to-date.

Notably, investors appear increasingly willing to reward companies making large-scale investments to support long-term AI demand. Micron’s recently announced $200 billion expansion plan, including what is expected to be the largest semiconductor manufacturing facility in the United States, highlights this trend.

Outside the technology sector, Ford also attracted investor attention after announcing a new energy-storage subsidiary, helping lift shares sharply over the past two weeks.

While markets have maintained a constructive tone, consumer sentiment tells a more nuanced story.

The Conference Board’s consumer confidence index edged down to 93.1 in May from 93.8 in April. While the decline was modest and slightly better than economist expectations, confidence remains below 100, a level it has not consistently exceeded since early 2025.

Beneath the headline, there were notable differences across income groups.

Confidence improved among households earning more than $100,000 annually, while sentiment weakened across most other income cohorts. At the same time, roughly two-thirds of consumers reported reducing spending due to higher prices.

These trends bear watching given the importance of consumer spending to the U.S. economy, where household consumption accounts for roughly two-thirds of GDP.

This week’s Personal Consumption Expenditures (PCE) report reinforced a familiar theme: inflation continues to run above the Federal Reserve’s 2% target.

Core PCE remains elevated, running at a three-month annualized pace of 3.78%. While some inflation pressures linked to last year’s tariffs appear to be fading, progress toward lower inflation remains gradual.

The key risk remains energy prices. Any renewed escalation in geopolitical tensions could lead to higher energy costs, slowing the pace of disinflation and complicating the policy outlook.

For now, longer-term inflation expectations remain relatively well anchored, which provides some reassurance.

Articles of the week:

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