Seven Weeks and a Warning: Macro Clouds, Silicon Lining

The S&P 500 (SPX) extended its winning run to a seventh straight week, although it managed to eke out just a 0.13% gain. Friday’s broad stock-market declines erased most of the weekly advance, pulling the other two key large-cap benchmarks into the red for the week, with the Nasdaq-100 (NDX) down 0.38% and the Dow Jones Industrial Average (DJIA) down 0.17%.

The negative weekly finish was driven by macro concerns and disappointment surrounding President Trump’s China visit, while market- and stock-specific news had pushed multiple indexes to all-time highs earlier in the week. With many of the most prominent tech and business leaders joining the President, markets were unimpressed by a summit heavy on pageantry but light on concrete achievements.

Adding to the uncertain backdrop, Friday marked Jerome Powell’s final day as Fed Chair, with Kevin Warsh inheriting a deeply divided committee and a macro environment complicated by resurging inflation. April’s PPI came in nearly triple the consensus forecast, marking the largest monthly increase since March 2022. Services accounted for more than half of the rise, in a sign that the Iran war-driven spike in oil prices is beginning to filter through wholesale inflation. Coming right after a CPI shock – with consumer prices surging 3.8%, their highest level in three years – it sent a strong signal that Warsh, like Powell before him, will likely have to wait before resuming interest-rate cuts. That is the best case scenario, with the worst case implying a rate hike.

Treasuries sold off on the news, with the 10-year yield climbing to its highest level in roughly a year, pressuring stocks – including semiconductors and other AI-related names, which had rallied sharply heading into Friday. A fresh wave of optimism had been sparked by the massive IPO of AI infrastructure firm Cerebras, the largest U.S. tech debut since Uber (UBER) in 2019, setting the stage for SpaceX, OpenAI, and Anthropic to cash in on the market’s AI enthusiasm.

While investors eagerly await the “new blood,” the old guard is staging a forceful comeback. Cisco (CSCO) surged after a blowout beat-and-raise, offering clear proof that the AI boom is expanding well beyond chipmakers. Applied Materials’ (AMAT) earnings report also confirmed that the AI “gold rush” is alive and well. Meanwhile, Taiwan Semiconductor (TSM) said it now expects the global semiconductor market to exceed $1.5 trillion by 2030 – a 50% increase from its previous forecast – driven by surging demand for AI and high-performance computing.

These developments have pushed expectations for the grand finale of the Q1 earnings season – NVIDIA’s (NVDA) earnings report on May 20 – even higher. The stock fell after the Trump-Xi summit ended without formal Chinese approval for NVIDIA’s H200 AI chip shipments, despite prior U.S. export authorization. However, over the past several quarters, both NVIDIA and Wall Street analysts have modeled zero contribution from advanced AI chip sales to China. As a result, the lack of a breakthrough on chip sales during the summit is unlikely to have any material impact on earnings.

Meanwhile, a pre-earnings pullback in NVDA may actually be a positive development, giving investors hope that the stock could break the pattern of the past three quarters, when shares rallied sharply into earnings only to fall afterward on “sell the news” reactions. Delivering strong upside surprises becomes increasingly difficult as expectations continue to rise.

In any case, NVIDIA’s results and guidance remain the key market-moving event – not only because the company accounts for more than 8.5% of the S&P 500, by far the largest weighting in the index. As the biggest beneficiary of data-center spending, the chip giant has become the bellwether of the AI buildout and one of the main engines behind the AI-driven rally.