Weekly Market Recap: Markets Extend Record Run as AI Momentum and Geopolitical Optimism Lift Risk Assets

Market Overview

Markets advanced again in a holiday-shortened week, with the S&P 500 gaining 1.44% and closing at 7,580 as it reached fresh record highs and posted a ninth consecutive weekly gain. The Nasdaq led major U.S. benchmarks with a 2.39% gain, while the Russell 2000 rose 1.77% and the Dow added 0.91%. Growth continued to outpace value, with the Russell 1000 Growth Index up 2.28% compared with a 0.73% gain for the Russell 1000 Value Index.

Investor sentiment remained supported by enthusiasm around artificial intelligence, easing Treasury yields, and optimism that a U.S.-Iran truce could reduce pressure on oil markets. Technology led sector performance for the week, rising 4.6%, while consumer discretionary, materials, and industrials also gained ground. Energy was the weakest sector, falling 5.4% as crude prices declined sharply on hopes of progress toward a deal between Washington and Tehran.

International markets also participated in the rally. Developed international equities rose 1.08%, while emerging markets gained 3.96%, helped by strength in Asian technology shares and continued enthusiasm around semiconductor demand. South Korea, Taiwan, Japan, and parts of greater China benefited from tech momentum, though Chinese equities remained mixed amid tighter capital controls, housing reform hopes, and pressure on e-commerce shares.

Fixed income markets improved as yields eased. The 10-year Treasury yield fell to 4.45% from 4.56% the prior week, while the 2-year yield declined to 3.98% from 4.13%. Core bonds gained 0.83%, investment-grade corporates rose 0.97%, and high yield bonds added 0.55%. Commodities were broadly weaker, led by a sharp drop in oil, while gold moved higher as rate-hike expectations eased slightly.

Federal Reserve Insights and Economic Roundup

The bond market has meaningfully repriced the path of monetary policy. Markets are now assigning roughly a 60% probability of a Fed rate hike this year, with a full hike priced by April 2027. That marks a sharp reversal from the rate-cut narrative that dominated earlier in 2026. Investors have also pushed the implied neutral fed funds rate closer to 4%, suggesting expectations for a higher-for-longer policy environment.

Despite that shift, long-run inflation expectations remain anchored, which gives the Fed room to stay patient rather than react aggressively to short-term price pressures. The 10-year Treasury has already absorbed a meaningful move higher since the start of the Iran conflict, driven by rising inflation expectations, higher term premiums, and a reset in policy-rate expectations. With much of that adjustment already reflected in yields, the hurdle for another Fed hike remains high.

On the economic front, first-quarter GDP growth was revised down to 1.6% annualized from 2.0%, largely due to softer services spending. However, business investment remains a key support for growth, with spending on equipment and intellectual property continuing to help drive the economy. April shipments of non-defense capital goods excluding aircraft rose 0.4%, following a 1.3% gain in March, reinforcing the view that AI-related infrastructure investment remains an important growth engine.

Labor market data remained steady, with initial jobless claims still low despite a slower hiring pace. Core inflation rose 0.2% in April, though supply constraints could push more inflation pressure into durable and nondurable goods prices over the next few months. Core services excluding housing rose just 0.1%, suggesting underlying services inflation remains contained for now.

The Week Ahead

Monday: Markets will watch May manufacturing PMIs, the ISM Manufacturing Index, and April construction spending for updates on factory and building activity.
Tuesday: JOLTS job openings and May vehicle sales will offer fresh insight into labor demand and consumer activity.
Wednesday: Services PMIs, ADP payrolls, factory orders, durable goods, capital goods data, and the Fed Beige Book headline the day.
Thursday: Job cuts, productivity, labor costs, and jobless claims will be in focus, while.
Friday: May payrolls, wages, unemployment, participation, underemployment, and April consumer credit.