Iran Deal Dashed, a Sober Look at Jobs Data, Memory Stocks Go Parabolic

Domestic equity index futures stumbled around as Sunday night poured into very early Monday morning. Crude oil prices worked their way higher. U.S. Treasury debt securities faced some pressure, forcing yields higher. What happened? U.S. Pres. Donald Trump and Iranian leaders rejected proposals to end the conflict between the two nations and safely reopen the Strait of Hormuz to global commerce.

The Wall Street Journal is reporting that Iran has offered to transfer at least some of its stockpile of enriched uranium to a third country and dilute a portion of that stockpile as well, but apparently is not willing to dismantle the nation's nuclear facilities. Iran is also looking for not only the lifting of financial sanctions and the release of frozen assets, but also payment for war-related damages.

The U.S. president posted to social media, “I have just read the response from Iran’s so-called ‘Representatives. I don’t like it — TOTALLY UNACCEPTABLE!”

This came after a post that read that Iran had been "playing games" and that “For 47 years the Iranians have been ‘tapping’ us along, keeping us waiting, killing our people with their roadside bombs, destroying protests, and recently wiping out 42,000 innocent, unarmed protestors, and laughing at our now GREAT AGAIN Country. They will be laughing no longer!”

Why Isn't it Worse?

Financial markets are reacting to this apparent double rejection, but not that sharply. Rumors have persisted up and down Wall Street and across the "Twitter-sphere" that back-channel talks have continued through the zero-dark hours and that the U.S. and Iran are actually still talking.

Upcoming Visit

The U.S. president will have to divide his attention this week. At the invitation of mainland Pres. Xi Jinping, Pres. Trump will arrive in Beijing this Wednesday and attend a welcoming ceremony that day. On Thursday, according to the South China Morning Post, the U.S. president will visit the Temple of Heaven as well as a state banquet. This will be the first visit by a U.S. president to mainland China in roughly nine years and comes after a postponement in early April due to the Iran war. That conflict and U.S. - Sino trade conditions are expected to be the main topics under discussion when Trump and Xi meet.

Surprisingly Strong Labor Market?

Financial markets will open the news week after Friday's mixed Bureau of Labor Statistics release of April labor market survey results. While the "headline" non-farm payrolls print was strong, there was plenty of hair all over that release. Your author does not, in hindsight, see the April employment situation nearly as strong as the rest of the financial media apparently did.

After February's relatively disastrous performance, according to the Bureau of Labor Statistics, the U.S. economy has posted back-to-back months of sharply accelerating job creation. According to the BLS Establishment Survey that is, as the BLS Household Survey is clearly measuring something very different in appearance. As seems to be the case more often than not, the twin BLS monthly labor market surveys are in sharp disagreement over just how healthy demand for labor was in this country in April.

Looking over that Establishment Survey, we see that job creation in the form of non-farm payrolls printed at 115,000 positions, well above the 62,000 that had been the consensus view and well above the views of many respected Wall Street economists that were far lower than that. This was partially offset by downward regions to the past two months that showed a net reduction of 16,000 jobs from prior estimates.

That's awesome, right? The now 156,000 jobs lost in February have been more than overcome by the addition of 300,000 new positions since. Hmm... That is until we look at the Household Survey. That particular survey shows a national loss of 226,000 unemployed people for April alone. April was the fourth consecutive month of net job losses published in this survey, which is not what we see in the Establishment survey nor in the ADP data.

According to the Household Survey, 92,000 people left the civilian labor force and the number of people not in the labor force increased by 188,000. That's how the unemployment rate remained where it was at 4.3% despite an increase of 134,000 unemployed people across the nation. Not looking like such a hot jobs report if one takes in ALL of the numbers and does not cherry-pick what sells a narrative.

There's More

The U-3 Unemployment Rate, also known as the underemployment rate, which is also drawn from the Household Survey, moved higher in April from 8.0% in March and 7.9% in February to 8.2%. The Participation rate dropped from 61.9% to 61.8% and now stands at its lowest level since September of 2021. The employment-to- population ratio dropped similarly from 59.2% to 59.1%.

I can keep going. The number of people working part-time for economic reasons increased by 445,000 in April, while the number of people working part-time for non-economic reasons decreased by 61,000. That's 384,000 more part-time workers, despite a supposed net job loss of 226,000 positions.

That implies a decrease in full-time employment of as many as 610,000 positions, which would make this release plainly awful. On the bright side, the average workweek for full-timers, which is also a measure of labor market demand, ticked back up to 34.3 hours from 34.2. Wage growth for those employed did improve from 3.5% on a year-over-year basis in March to 3.6% in April, but did fall short of the 3.8% consensus view.

Quote of The Day - One

"What lies behind you and what lies in front of you, pales in comparison to what lies inside of you."

- Ralph Waldo Emerson

The Past Week...

The major U.S. equity indexes ended last week sharply higher in response to that above report not so much because it reflected a strong labor market, but more because in my opinion, it finally puts to bed the idea of the U.S. central bank increasing short-term interest rates at any point in 2026. A red-hot earnings season has not hurt at all either.

Semiconductor stocks were red hot last week as our memory / storage basket went parabolic. Micron (MU) was up 37.7% for the week, while SanDisk (SNDK) ran 31.6%. Away from memory, among the designers, Advanced Micro Devices (AMD) popped for a weekly run of 26.3%. All are established Sarge-folio names.

Tensions as mentioned above between the U.S. and Iran continue to impact the daily trade of U.S. and global financial markets. Not necessarily in a negative way, as the peace process has taken the initiative away from the kinetic side of warfare, but volatility (good or bad) has remained extreme-ish.

Week Ahead

What matters moving forward...

- The Geopolitical... The ongoing peace process between the U.S. and Iran remains the most important item under the microscope, as the US will try to safely re-open the Strait of Hormuz to global commerce. President Trump's visit to China will steal the headlines by the later part of the week.

- Macro.... This will be a fairly active week, from a macroeconomic perspective. The dominant macroeconomic releases this week will be April consumer price index on Tuesday morning, April producer price index on Wednesday morning, April retail sales on Thursday morning and April Industrial Production on Friday morning. The US Treasury will, also auction off $42 billion worth of new Ten-Year Notes on Tuesday afternoon and $25 billion worth of new Thirty-Year Bonds on Wednesday afternoon.

- The Federal Reserve... The Fed will be out and about this week, though none of the real headliners are currently on my radar. NY Fed Pres John "Lightning Bolt" Williams on Tuesday and Cleveland Fed Pres Beth Hammack on Thursday will speak and both hold policy voting rights for 2026. Minneapolis Fed Pres Neel Kashkari voted this year as well and will also speak on Thursday, but he has more or less willingly (in my opinion) faded into the background of late.

- Earnings... First-quarter earnings season is moving into its final stages. That said, this will be another heavy earnings week, but it comes bearing far fewer high-profile reports compared to previous weeks. Reporting on Monday will be Simon Property Group (SPG) . On Tuesday, we'll then hear from D-Wave Quantum (QBTS) . Wednesday will finally bring numbers from the week's big dog, Cisco Systems (CSCO) . On Thursday, Applied Materials (AMAT) will go to the tape alongside Canada Goose (GOOS) and Yeti Holdings (YETI) .

The Week That Was...

U.S. financial markets, for the most part, posted a sixth consecutive winning week over the past five business days and continued to mark new record highs. For the period....

- The S&P 500 gained 0.84% on Friday and 2.33% for the week.

- The Nasdaq Composite added 1.71% on Friday and a nifty 4.51% for the week.

- The Nasdaq 100 tacked on 2.35% on Friday and an impressive 5.5% for the week.

- The Russell 2000 gained 0.76% on Friday and 1.72% for the week.

- The S&P Small Cap 600 gained 0.51% on Friday and 0.63% for the week.

- The S&P Midcap 400 added 0.49% on Friday and 1.65% for the week.

- The Dow Transports gained just 0.08% on Friday but lost 1.94% for the week.

- The Philly Semis gained a whopping 5.51% on Friday and an incredible 11.14% for the week.

- The KBW Bank Index surrendered 0.79% on Friday and a gnarly 1.9% for the week.

On Friday, just five of the eleven S&P sector SPDR ETFs closed out the session in the green. The winners were easily led by Technology (XLK) , while the defensives led the losers.

For the week, seven of the 11 S&P sector SPDR exchange-traded funds closed out the session in the green. Tech was again the runaway winner, followed by the discretionaries (XLY) . The energy (XLE) and utilities (XLU) sectors led the losers.

Quote of the Day - Two

"No act of kindness, no matter how small, is ever wasted."

- Aesop

Earnings

As of May 8, according to FactSet, for the first quarter, Wall Street now expects to see year-over-year blended (results & expectations) earnings growth for the S&P 500 of 27.7%, up from 27.1% last week, and up from 11.6% roughly six weeks ago. This is a stunning increase in such a short time and underscores just how powerful AI-related corporate profitability has become. Wall Street also sees revenue growth of 11.3%, up from 11.1% a week ago. With 89% of the S&P 500 having reported, 84% of companies have beaten earnings expectations, while 80% have beaten sales projections.

For the full year of 2026, Wall Street now looks for earnings growth of 21%, up from 20.6% last week, and up from 14.7% six weeks ago, on revenue growth of 10.1%, up from 9.7% last week and up from 7.7% six weeks ago. The outlook for the second quarter finally paused. Second-quarter earnings growth is now estimated at 19.9%, down from 21.3% last week.

At the moment, technology and the communication services sectors are projected to have grown earnings a jaw-dropping 50.7% and 48.8% for the first quarter, respectively. Just one sector, health care is currently projected to have suffered a Q1 earnings contraction.

Valuation

Still using data provided by FactSet, the S&P 500 ended last week trading at 21 times twelve months' forward-looking earnings, up from 20.9 times last week, but still down from 21.6 times about six weeks ago. This is above the five-year average of 19.9 times for the index as well as being well above its ten-year average of 18.9 times.

The S&P 500 also ended last week trading at 29 times trailing twelve months' earnings, up from 28.5 times one week ago, and above levels that the index reached six week back. This also stands well above the five-year (24.6 times) and ten-year (23.3 times) averages for the index.

Only seven of the 11 sectors are now trading above their five-year average valuations, led by the discretionaries (27.6 times), the industrials (25.3 times). Only technology ( 24.6 times) and health care (16.6 times closed out last week undervalued relative to their five-year norms. Both the utilities and health care are now trading precisely at the five-year average valuations.

Fed Funds Futures

Fed Funds futures trading in Chicago are currently pricing in a 94% probability for no change to be made to the target range for the Fed Funds Rate at the next FOMC policy meeting on June 17th. Of course, Kevin Warsh will be running the central bank by then, but Jerome Powell will still have a say. There are no rate hikes fully priced in at any point in the future looking out towards year's end 2027. That said, there are still no rate cuts priced in for calendar year 2026 either. In fact, no changes at all are priced into these markets until after December of 2027.

Quote of the Day - Three

"Start by doing what's necessary; then do what's possible; and suddenly you are doing the impossible."

- St. Francis of Assisi

Economics

(All Times Eastern)

10:00 - Existing Home Sales (Apr): Expecting 405M, Last 3.98M SAAR.

The Fed

(All Times Eastern)

No public appearances scheduled.

Today's Earnings Highlights (Consensus EPS Expectations)

After the Close: (OVV) (1.83), (SPG) (3.03)

At the time of publication, Guilfoyle was long MU, SNDK, AMD equity.