The S&P 500 clinched its eighth straight weekly gain, its longest winning streak since 2023, as corporate earnings soared and Wall Street futures gained on hopes of U.S.-Iran peace talks, even as U.S. forces conducted fresh strikes in southern Iran. This market surge, driven by a narrow set of technology and AI-related stocks, occurred while higher Treasury yields pushed up loan and mortgage rates, burdening consumers whose sentiment is at record lows.
Capital's Gains Amidst Conflict
Corporate America continues to post strong profits, with the S&P 500 set to record its highest quarterly earnings growth rate since 2021. First-quarter earnings growth is expected to reach approximately 29% year-over-year, an increase from a prior estimate of 16.1%.
The S&P 500 has achieved 18 record highs this year, nearing another, with gains concentrated in technology and AI-related stocks. Since the war with Iran began, the S&P 500 is up about 8.6%, while an equal-weighted version of the index is up less than 1%, revealing the uneven distribution of these gains.
These market increases have been further propelled by the AI buildout and tax cuts enacted through President Donald Trump’s "One Big Beautiful Bill Act." Oil prices are currently at four-year highs, contributing to the broader inflationary environment.
The State's Imperial Hand
Despite President Donald Trump’s Truth Social post indicating peace negotiations were "proceeding nicely" on the same day, U.S. forces carried out what Central Command described as "self defense" strikes in southern Iran early Tuesday. This apparent flare-up in hostilities occurred concurrently with market speculation about de-escalation.
Secretary of State Marco Rubio, speaking from India, stated that the Strait of Hormuz would ultimately have to be opened "one way or the other," signaling the imperial imperative to secure vital shipping lanes for global capital. Iran's Islamic Revolutionary Guard Corps announced it would retaliate against violations of the ongoing ceasefire, after identifying and engaging U.S. drones and an F-35 jet fighter that entered the country's airspace.
In the bond market, U.S. Treasury yields were trading at their highest levels in a year, with traders expecting the Federal Reserve to maintain interest rates, or even raise them later this year. This expectation was linked to the closure of the Strait of Hormuz, oil prices at four-year highs, and rising inflation expectations.
Treasury yields fell Tuesday as bond markets returned from a Memorial Day break, catching up with large declines seen in European sovereign yields on Monday. The yield on the 10-year U.S. Treasury note dropped more than 8 basis points to 4.485%, while the 2-year note yield fell 7 basis points to 4.057%, and the 30-year bond yield declined more than 7 basis points to 5.009%.
Workers Bear the Cost
Higher Treasury yields translate directly into more expensive loans and mortgage rates, increasing the debt bondage on consumers. Consumer sentiment, as measured by the University of Michigan’s long-running survey, is currently at record lows.
A core measure of the Consumer Price Index, which excludes food and energy, rose 2.8% year-over-year in April. Bank of America forecasts a 0.4% increase in April's personal consumption expenditures report from March, and a 3.8% increase in headline PCE year-on-year, indicating continued erosion of purchasing power for working people.
The Federal Reserve's preferred measure for assessing inflation, April's personal consumption expenditures report, will be closely monitored by investors later this week. The Atlanta Federal Reserve’s daily tracker pins U.S. GDP at 4.3%, with unemployment in April unchanged at 4.3%. Investors and strategists indicate that the market can absorb higher yields if economic growth persists, but intensifying inflation fears and increased bond market volatility could outweigh the positive outlook on economic growth, revealing capital's primary concern for its own valuations over the material conditions of the working class.