Strong earnings, yet stocks fell a second straight week

Good morning. If you had to sum up last week on Wall Street in one line, it would be: great earnings, weak stocks. The S&P 500 fell for a second straight week, down 0.6%, and ended 2.6% to 2.7% below its record high, even though 86% of companies reporting so far have beaten profit forecasts.

The drag is the bill for AI. When Alphabet raised its capex plans, the Magnificent Seven lost about $800 billion in market value on Thursday alone, and spreads on Google, Amazon and Meta debt widened on fears that other giants will follow. When spending outruns cash flow, companies borrow to fill the gap, and bond investors have started demanding more for that risk. The heads of Nvidia and AMD pushed back, saying the AI boom is not cooling and is in fact doing the opposite.

Oil and the Middle East matter too. WTI rose $6.82 on the week to $89.31, up 55% this year, then dipped Friday on reports of Pakistan-backed US-Iran talks. In this war diesel has jumped more than gasoline, and analysts warn it could push up the cost of everything from groceries on down.

That is why next week matters. A hold is likely at Wednesday's Fed meeting, but new Chair Warsh is deliberately giving no signals, so the market is in the dark. Some, like Ed Yardeni, say the Fed may need up to three hikes. With the 30-year yield approaching 5.2%, a single remark could ripple through stocks.