Stocks continued to recover from their April losses last week supported by better-than-expected corporate earnings reports. The S&P 500 Index gained 1.9%, bringing its year-to-date return to 10%. The rally was broad with all S&P sectors in the green led by utilities, financials, and materials. Internationally, the developed and emerging markets rose 1.8% and 1.0%, respectively.

• The yield on the 10-year U.S. Treasury notes showed little change for the week, settling at 4.5% on Friday. The Bloomberg Aggregate Bond and the Bloomberg Municipal Bond Indexes picked up 0.1% and 0.5%, respectively.
• The first quarter earnings reporting period is nearing its conclusion on a high note. As of Friday, 92% of S&P 500 companies had reported first quarter results with nearly 80% of them topping Wall Street forecasts. Analysts currently estimate first quarter earnings grew 7.4% on a year-over-year basis. This compares with estimated growth of just 5.1% at the start of the reporting period in early April. Analysts have also raised their full-year 2024 earnings growth estimate to 10.4% from 9.9% previously.
• The Department of Labor reported that initial claims for unemployment benefits climbed to 231,000 for the week ending May 4th. This was the highest level reported since August of last year and exceeded the consensus forecast of 219,000. The financial markets responded positively to this report as it pointed to a possible easing of tight labor market conditions that have contributed to inflation. However, initial claims remained well below their historical long-term average of about 350,000 suggesting job opportunities remain plentiful.
• The University of Michigan reported its preliminary index of consumer sentiment for May slipped to 67.4, down from a final reading of 77.2 in April. May’s measure was the weakest level reported in six months and substantially below its long-term average of about 85. The large drop in sentiment is attributed to growing concerns about the outlook for inflation and the economy. This could lead to reduced retail spending in the months ahead, but the index has had very limited predictive value over the last few years.

Investor attention in the week ahead will be focused on Inflation and retail sales data. On Wednesday, the Bureau of Labor Statistics (BLS) will release its April Consumer Price Indexes (CPI). Forecasters tracked by Bloomberg expect the headline CPI, which includes food and energy prices, to increase 3.5% on year-over-year basis. This compares with 3.4% in March. The Core CPI, which excludes food and energy prices, is expected to ease to 3.6% from 3.8% in March.

• Also on Wednesday, the Commerce Department will report April retail sales. The Bloomberg consensus forecast calls for an increase of 0.4%, following an increase of 0.7% in March.
• Upside surprises in these reports – particularly for inflation – could trigger sell-offs in the stock and bond markets on worries of further postponements in interest rate cuts form the Federal Reserve.