U.S. stock indexes closed higher on Friday, with the S&P 500 and Nasdaq 100 reaching new record highs, driven by a wave of stronger-than-expected corporate earnings and a resilient labor market that overshadowed escalating geopolitical tensions in the Middle East. The Dow Jones Industrial Average lagged, ending nearly flat due to weakness in software stocks.
Labor Market Shows Strength Despite Consumer Sentiment Slump
The April nonfarm payrolls report provided a key pillar of support for markets. The U.S. economy added 115,000 jobs last month, well above the 65,000 expected by economists. Additionally, March payrolls were revised upward to 185,000 from the previously reported 178,000. The unemployment rate held steady at 4.3%, in line with forecasts.
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However, wage growth came in softer than anticipated. Average hourly earnings rose 0.2% month-over-month and 3.6% year-over-year, missing expectations of 0.3% and 3.8%, respectively. This mixed signal—solid job creation alongside easing wage pressures—provided a Goldilocks scenario for equities, suggesting the labor market remains healthy without adding excessive inflationary pressure.
Offsetting the positive jobs data, the University of Michigan’s May consumer sentiment index fell to a record low of 48.2, below the expected 49.5. Notably, inflation expectations eased slightly, with one-year expectations dropping to 4.5% from 4.7% in April, and five-to-ten-year expectations declining to 3.4% from 3.5%. This helped Treasury yields fall, with the 10-year note yield declining 2.1 basis points to 4.365%.
Chipmakers and AI Infrastructure Lead the Rally
The technology sector, particularly semiconductor and AI-infrastructure stocks, powered the Nasdaq 100’s 2.35% gain. Sandisk surged more than 15%, while Micron Technology jumped over 14%. Intel climbed more than 13%, and Advanced Micro Devices added over 10%. Qualcomm, Applied Materials, KLA Corp, and Marvell Technology each rose more than 5%.
The rally was broad within the chip space, with ASML Holding, Lam Research, Broadcom, and Western Digital all posting gains exceeding 2%. Mining stocks also benefited from rising gold, silver, and copper prices, with Anglogold Ashanti up more than 7% and Southern Copper and Barrick Mining each rising over 3%.
Software stocks, however, acted as a drag. Salesforce, Autodesk, Workday, ServiceNow, and Intuit each fell more than 2%, while Adobe and Microsoft declined over 1%.
Geopolitical Risk: Strait of Hormuz Disruption Intensifies
Geopolitical tensions in the Middle East remained a key undercurrent. Iran’s semi-official Tasnim news agency reported that Iran seized an oil tanker in the Strait of Hormuz on Friday, accusing it of attempting to disrupt oil exports. In response, U.S. forces targeted missile and drone launch sites in Iran that were responsible for attacking three U.S. Navy destroyers transiting the strait.
President Trump has threatened intense strikes if Iran does not agree to a proposed deal to reopen the strait, which remains effectively closed. Goldman Sachs estimates the disruption has drawn down nearly 500 million barrels from global crude stockpiles, with the drawdown potentially reaching 1 billion barrels by June. WTI crude oil prices moved higher on the news, adding to inflationary concerns globally.
The situation has also influenced central bank expectations. The market is pricing only a 6% chance of a Federal Reserve rate cut at the June 16-17 meeting. In Europe, swaps are discounting a 79% chance of a 25-basis-point rate hike by the ECB at its June 11 meeting, as officials warn that energy-price shocks could threaten medium-term price stability.
Earnings Season Continues to Support Sentiment
First-quarter earnings reports have been a consistent positive driver. As of Friday, 83% of the 446 S&P 500 companies that have reported have beaten estimates. Aggregate Q1 earnings are projected to rise 12% year-over-year, according to Bloomberg Intelligence. However, stripping out the technology sector, earnings growth is estimated at just 3%, the weakest in two years.
Notable individual movers included Akamai Technologies, which surged more than 26% after raising its full-year revenue forecast and announcing a $1.8 billion AI cloud contract. Monster Beverage rose over 13% on better-than-expected Q1 sales. On the downside, Cloudflare fell more than 23% after issuing weaker-than-expected Q2 revenue guidance, while HubSpot dropped over 18% on a similar forecast miss.
Conclusion
Friday’s session encapsulated a market addressing multiple crosscurrents: reliable corporate earnings and a resilient labor market on one hand, and record-low consumer sentiment and escalating geopolitical risk on the other. The rally in chipmakers and AI-related stocks underscores the market’s continued focus on long-term growth themes, even as short-term risks from the Strait of Hormuz disruption and potential central bank tightening loom. For investors, the key question remains whether earnings momentum can sustain the rally if geopolitical tensions escalate further.
FAQs
Q1: Why did stocks rally despite record-low consumer sentiment?
The rally was driven primarily by stronger-than-expected corporate earnings and a solid April jobs report, which reassured investors about the health of the economy. The negative consumer sentiment data was partially offset by easing inflation expectations, which supported bond markets and reduced fears of aggressive Fed tightening.
Q2: How is the Strait of Hormuz disruption affecting markets?
The disruption has pushed crude oil prices higher and created uncertainty about global energy supplies. It has also influenced central bank policy expectations, with the ECB now pricing in a high probability of a rate hike due to potential energy-driven inflation. For equities, the impact has been mixed, with energy stocks benefiting while broader market sentiment is weighed down by geopolitical risk.
Q3: What does the earnings data tell us about the broader economy?
While overall S&P 500 earnings are strong, the divergence between technology and the rest of the market is notable. Excluding tech, earnings growth is just 3%, the weakest in two years. This suggests that sectors outside of technology are facing margin pressure from higher input costs and slower demand, even as the labor market remains resilient.
