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ECONOMIC WEEK AHEAD: April 27-May 1
This is one of the busiest weeks of the year on the economic calendar. Five major central banks meet: the Fed, the Bank of Japan, the Bank of Canada, the European Central Bank, and the Bank of England. Five mega-cap tech names report earnings: Alphabet, Amazon, Meta, Microsoft, and Apple. Wednesday brings the advance Q1-2025 GDP report, and Thursday the March PCED, which will show how much of the oil shock has hit the Fed's preferred inflation gauge. There will also be plenty of fresh survey data, with regional business surveys complementing Friday's national M-PMI print, plus the Conference Board's April Consumer Confidence Index, all on tape. The blockade of the Strait of Hormuz by both the US and Iran remains the overriding issue. Both the US and Iran declined to meet in Islamabad this weekend. The price of a barrel of Brent crude closed at $105.33 on Friday, almost $20 above last week's low (chart). With that said, let's take a look at the key releases most likely to shape investors' thinking on growth, inflation, and the central bank reaction function this week: (1) FOMC and the global central bank docket. All five central banks are expected to remain on hold, leaving their policy rates roughly where they've been since late 2025 (chart). As is usually the case when the rate decisions themselves are foregone conclusions, investors will be reading the official commentary closely. Fed Chair Jerome Powell's press conference on Wednesday is the main event. The pronouncements of the other central bankers all will be parsed for how they frame the oil shock, the growth slowdown, and inflation pass-through. (2) GDP. Q1-2025 GDP (Wed) is likely to be up 1.2% according to the Atlanta Fed's GDPNow model. We are still blaming bad weather in January and February for the weakness (chart). (3) Inflation. March PCED (Thu) is the first clean read on how much of the oil shock is reaching the Fed's preferred inflation gauge. Headline PCED inflation was 2.8% y/y in February (chart). The Cleveland Fed's Inflation Nowcasting model projects headline inflation to rise to 3.39% y/y in March (0.59% m/m). The core PCED inflation rate is tracking at 3.10% y/y and 0.23% m/m (chart). (4) Unemployment. Initial jobless claims (Thu) rose to 214,000 for the week of April 17, with the four-week moving average edging up to 210,800 (chart). Continuing claims ticked up to 1,821,000, though the four-week moving average continues to trend lower (chart). The labor market likely remained resilient during the second half of April. (5) Manufacturing surveys. Along with Friday's national M-PMI, business surveys will be released by the Dallas Fed (Mon), Richmond Fed (Tue), and Chicago PMI (Thu). The April regional composite already sits at 15.9 based on the three available surveys (chart). That suggests another solid reading for April's M-PMI. (6) Consumer Confidence. April's Consumer Confidence Index survey (Tue) might follow April's Consumer Sentiment Index lower (chart). While sentiment matters, consumers are still spending for now. The latest CCI survey might find that employment indicators are showing some signs of life, in our opinion.
Read Full AnalysisINFORMATION TECHNOLOGY: Creative Destruction On Speed
We lowered the S&P 500 Information Technology and Communication Services sectors from overweight to market weight on December 7, 2025. We did so because the two sectors together accounted for 45% of the S&P 500's market capitalization (chart). We were also concerned about the mounting uncertainties regarding the rate of return on hyperscalers' massive AI investments. Since then, investors have concluded that the hyperscalers are also profitable semiconductor companies. Amazon, Google, and Tesla have been moving in that direction for a while. AI uncertainties have been repressed by the two sectors' record-setting forward earnings, which together account for a record 42% share of S&P 500 forward earnings. In any event, we are sticking with our advice to market-weight the two sectors simply because we still believe in diversification across sectors. It's much easier to overweight Energy (as we recommended on April 20), which accounts for only 3.3% of the S&P 500's market cap. Focusing now on the S&P 500 Information Technology sector, it is up 8.0% ytd. However, there is an unusually large spread between the winners and the losers (chart). The former are all IT hardware industries that stand to benefit from rapid AI adoption, while the latter include IT software and services that face existential risks from AI replacement. It's a classic example of Joseph Schumpeter's creative destruction model of capitalism. Let's have a closer look at the sector's latest dynamics: (1) High-tech accounts for a record 53.8% of nominal capital spending (chart). When the Digital Revolution began in the mid-1960s with the introduction of IBM mainframe computers, this percentage was just below 20%. (2) Tech's fundamentals remain the strongest in the index. Forward earnings per share is up 55.0% y/y, and forward revenues per share is up 32.8% y/y through the week of April 16. Both are the highest growth rates of any S&P 500 sector by a wide margin (charts). (3) The sector's forward profit margin is 31.7%, also a sector-leading figure and the highest on record for IT (chart). The sector's underperformance this year has nothing to do with deteriorating fundamentals. (4) The S&P 500 Semiconductors industry now accounts for a record 41.9% of the S&P 500 Information Technology market cap, up from roughly 15% a decade ago. Further, its share of IT forward earnings has moved even higher, to 47.1% (chart). Within a few quarters, half of every dollar of IT profits could come from chips! (5) Analysts' consensus 2026 earnings growth forecast for S&P 500 Semiconductors has been revised up to 86.5% from 65.0% at the start of this year (chart). The 2027 growth estimate is at 44.3% and climbing. Revenue growth forecasts tell the same story, with 2026 at 55.7% and 2027 at 34.0% (chart). (6) Despite that heady earnings outlook, the S&P 500 Semiconductors forward P/E is currently 20.9, slightly below the S&P 500 P/E at 21.1 (chart). This multiple exceeded 35.0 in 2024. The industry most beneficially exposed to AI, the defining growth theme of the Roaring 2020s, is trading at a discount to the market! (7) The unhappier side of IT tells the opposite story. The S&P 500 Application Software forward P/E has compressed to 23.4, the lowest reading since 2014, and is roughly half the 2021 peak of 53.7 (chart). The industry's forward revenues, earnings, and profit margin all are at record highs. Investors are anticipating that these fundamentals all will deteriorate as AI adoption becomes more widespread.
Read Full AnalysisStock Market Rally Isn't Running Out of Fuel. US Economy Still Acing Stress Tests.
President Donald Trump may have to write a sequel to his 1987 book, "Trump: The Art of the Deal." It's hard to make a deal if you kill your opponent. He said that about Iran today again: "They’re all messed up. They have no idea who their leader is... We took out, really, three levels of leaders... So they have a hard time figuring out who the hell can speak for the country." Reports surfaced today that Mohammad Bagher Ghalibaf, the Speaker of the Iranian Parliament and Tehran's lead negotiator, has resigned from the negotiating team. He allegedly did so due to persistent interference from the hardliners in the Islamic Revolutionary Guard Corps. As a result, Brent is back up to $100 a barrel this evening. However, the futures market is still signaling a sharp decline over the next 12 months (chart). That's certainly a possible outcome, but why isn't the price of oil much higher today since the Straight of Hormuz has been effectively shut to navigation since February 28, when the war started? Oil is leaving the Middle East via pipelines and oil truck convoys. Also, Russia is supplying more oil to both China and India. Japan is buying oil from Mexico. Apparently, the US stock market can live with $100 oil for now. Indeed, sentiment has turned more positive as can be seen in the latest readings of our two favorite Bull/Bear Ratios (chart). They aren't high enough to give us pause about the stock market rally that started on March 31. Today was a bad day for software-related stocks (chart). The management of ServiceNow stated that the ongoing conflict in the Middle East has started to delay deal closings in the region. IBM reported slowing growth in its software segment, specifically within Red Hat. Their stock prices fell 18% and 7%, respectively. Microsoft added to the somber mood by offering voluntary buyouts to long-tenured employees today. It's a first for the giant, signaling a massive internal reorganization to pivot away from traditional software toward pure-play AI efforts. Meta also announced it is slashing roughly 8,000 jobs worldwide. Adding to the low morale, Meta recently disclosed a new program that has employees on edge. The company is installing software on work laptops to capture keystrokes, mouse movements, and screenshots, with the goal of training "AI agents" to autonomously perform tasks currently done by humans. Investors are continuing to rotate out of software and into hardware, such as semiconductors and semiconductor equipment (chart). After the close, Intel announced great results, beating estimates. Shares traded as much as 20% higher. Investors are increasingly betting on the long-term consequences of the Technology Revolution and looking past the short-term mess in the Middle East. In recent days, the Defiance Quantum ETF has soared to record highs (chart). Investors are also betting on the ongoing resilience of the US economy, which was confirmed by today's economic data: (1) Jobless claims. Initial unemployment claims for the week ended April 18 ticked up modestly but remain well below their long-run historical average and their 2025 average—hovering near some of the lowest levels of the past year and fully consistent with an economic environment in which layoff activity is historically subdued (chart). The same story holds for continuing claims, which we track as a proxy for the difficulty unemployed workers face in finding new employment. Continuing claims edged up slightly during the week ended April 18 but remain below their 2025 average, and the four-week moving average continues to hover near its lowest level since June 2024. That is an encouraging signal: not only are layoffs low, but those who do lose their jobs are finding new ones more easily. We interpret this as evidence that hiring activity may be starting to improve. (2) Flash PMIs. April's S&P Global Flash PMI data were strong, notwithstanding higher energy prices (chart). The Services PMI Business Activity Index rebounded to its highest level in two months in April, snapping back from a brief dip below the expansion threshold in March. New business inflows accelerated, service sector employment grew faster, and business confidence improved. Even more striking, both the Manufacturing PMI and the Manufacturing Output Index surged to multi-year highs in April. The breadth of the improvement was notable, with new orders, output, and employment all expanding at an accelerating pace. A note of caution is warranted, however. A portion of the manufacturing gains were driven by precautionary inventory building ahead of anticipated supply shortages and price hikes, rather than by an acceleration in underlying demand. Supply chain disruptions tied to the Middle East conflict intensified, with supplier delivery times deteriorating to their worst levels since mid-2022 and a surge in safety-stock purchases that echoes the pandemic-era dynamics of 2021. These pressures fed directly into prices: average selling prices rose at the fastest pace since mid-2022, and input cost inflation hit an eleven-month high.
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