U.S. equity markets reached new all-time highs, primarily fueled by strong Q1 earnings, particularly from Big Tech, and a robust AI investment narrative. While this "AI engine" is driving corporate earnings and business spending, the "consumer engine" shows signs of weakening, with decelerating spending and rising energy costs. The Federal Reserve also exhibited internal division on rate policy, highlighting a complex economic landscape where the strength of the labor market will be key to sustaining the rally.
Every atomic assertion extracted from the underlying record, ranked by evidence strength.
If this week's employment data does not show the labor market holding firm, investors may have to confront risks of an inefficient investment environment.
Anthony Saglimbene believes the AI engine is powering corporate earnings, business spending, and equity returns.
If this week's employment data shows the labor market is holding firm, the rally may have more room to extend into the summer.
Anthony Saglimbene notes some "engine knocks" forming for the consumer engine.
Anthony Saglimbene believes the consumer engine is still running, supported by low layoffs and a stable unemployment rate.
Big Tech results broadly reinforced a positive AI investment narrative.
Consumer spending decelerated to a +1.6% annualized pace in Q1 from +1.9% in Q4 2025.
The 3.6% personal savings rate is the lowest level in over three years.
The Federal Reserve meeting was marked by rare internal division, with four dissents.
This week's employment data should help determine how far the AI engine can take markets without the consumer engine running at full strength.
A divided Federal Reserve and an unresolved Middle East stalemate played in the background.
Energy led all S&P 500 sectors, gaining +3.2%.
Materials were the notable laggard, falling nearly 2.0%.
Treasury prices weakened last week.
More than 60% of S&P 500 constituents had reported Q1 earnings.
Communication Services led all S&P 500 sectors, gaining +4.5%.
Goldman Sachs estimated that certain trading strategies purchased $80 billion in U.S. equities over the past month.
The Dow Jones Industrial Average gained +0.5% last week.
Physical supply conditions for WTI crude continued to tighten.
WTI crude's +6.8% gain added to the prior week's +14% gain.
The Strait of Hormuz remains closed.
The ceasefire in the Middle East continues to hold.
The NASDAQ Composite rose +15.3% last month, its best month in six years.
Elevated capital spending plans continued to draw scrutiny across the Big Tech group.
Outside of mega-cap tech, software earnings helped ease AI disruption fears.
Memory delivered strong results in Q1 earnings.
Select industrials beat Q1 earnings on backlog and bookings strength.
Payment processors reinforced the consumer resilience narrative.
Pockets of consumer-facing weakness surfaced in digital entertainment and select restaurants.
The Federal Reserve held its rate policy unchanged.
The Russell 2000 advanced +0.9% last week, marking its sixth consecutive weekly gain.
Q1 earnings growth accelerated sharply.
West Texas Intermediate (WTI) crude rose +6.8% last week.
The labor market showed continued resilience last week.
Gold finished lower last week.
The NASDAQ rose +1.1% last week.
Inflation was cooling last week.
GDP rebounded from Q4's sluggish pace.
Yen strength was the big FX story on intervention headlines.
Economic data was broadly supportive last week.
In April, one of two engines principally carried the equity market to its best month since November 2020.
The AI engine powered Q1 GDP growth.
The AI engine drove earnings beats across every major hyperscaler.
The American consumer engine is still firing but might be starting to run low on fuel.
The U.S. Dollar Index declined last week.
The S&P 500 Index gained +10.4% in April, its best month since November 2020.
The S&P 500 gained +0.9% last week.
The Philadelphia Semiconductor Index gained over +38% in April, its strongest month since February 2000.
Alphabet led the Magnificent Seven in April, gaining nearly +34%.
Amazon was up over +27% in April.
South Korea's Kospi closed at a record in April.
Chip manufacturing accounted for more than half of South Korea's Q1 GDP growth.
Taiwan's TAIEX topped 40,000 for the first time last month.
Japan's Nikkei breached 60,000 for the first time in its history.
The $80 billion purchase was the second-highest on record.
Ameriprise Financial believes that mechanical bid to buy stocks might have run its course.
Goldman Sachs noted that May has historically been the largest outflow month of the year for equity mutual funds and ETFs.
The reopening of the buyback window following the reporting season could provide an offset to outflows.
Q1 GDP grew at a +2.0% annualized rate.
The S&P 500 Index and NASDAQ Composite closed at fresh all-time highs.