April's inflation report was a pleasant surprise. The personal consumption expenditures price index rose 0.4% from March, just below the 0.5% economists expected. Core PCE, which strips out food and energy and is the Federal Reserve's preferred measure of underlying inflation, rose 0.2%, also softer than the 0.3% forecast. In normal times, that would be enough to lighten the mood. It suggests that price pressures are not accelerating as fast as feared, and it gives the Fed more room to keep interest rates steady rather than rushing toward another hike.

The problem is that inflation is no longer only about rents, wages, services, or the usual basket of household costs. It is also about the Strait of Hormuz, drone attacks, air strikes, and the price of oil. The U.S. and Iran appear to be hinting at diplomacy, but not necessarily the same diplomacy. Iran has talked up the possibility of an arrangement to restore shipping through Hormuz, reportedly under Iranian and Omani supervision. Washington has pushed back on the idea that a compromise is close. Then came fresh military action: U.S. strikes, Iranian attacks, and renewed doubts that the region is anywhere near a stable pause.

Oil jumped again Thursday after falling sharply earlier in the week on hopes of progress. Brent had dropped after reports of a possible memorandum on reopening the Strait, only to rebound as those hopes ran into denials and new hostilities. Thursday's session captures that tension, with futures hovering around zero. Yesterday, the Dow, S&P 500, and Nasdaq had just closed at record highs. The S&P 500 was on pace for a ninth straight weekly gain, its longest such streak since late 2023. Investors have been willing to look past geopolitical risk because earnings have held up and the artificial-intelligence trade still has the glow of inevitability. 

Snowflake offered the clearest example of that enthusiasm. Its shares surged after the company lifted its annual product revenue forecast and announced a five-year, $6 billion AI infrastructure deal with Amazon Web Services. The message was simple: companies that can show a credible route from AI spending to revenue are still being rewarded generously. Datadog and MongoDB rose as well, as investors looked for other software names that might benefit from the same trend.

But the market was more selective elsewhere. Marvell fell after its quarterly results, despite a huge rally earlier this year. HP Inc slipped after warning that rising memory costs would pressure margins. Salesforce disappointed investors with its outlook. Micron weakened after a sharp recent surge.

Outside technology, the consumer picture looked mixed but not broken. Dollar Tree rose after lifting its full-year profit forecast, Best Buy gained after forecasting better-than-expected second-quarter sales. That does not exactly scream boom times, but it does suggest that the American consumer has not vanished.

The Fed is watching for evidence that inflation is cooling enough to justify patience. The softer-than-expected numbers help, but they do not remove the larger problem: if oil remains high because of a prolonged confrontation with Iran, inflation could become harder to tame just as growth begins to slow.

That is the unpleasant word now hanging around the edges of the conversation: stagflation. Chicago Fed President Austan Goolsbee has warned that persistent energy shocks and stubborn inflation could push the economy in that direction. Fed Governor Lisa Cook has also made clear that she is prepared to support higher rates if disinflation does not show up in time. For now, the Fed can hold steady.

The bond market seems to understand this. Treasury yields moved higher as oil prices rose, reflecting the fear that energy-driven inflation could keep the Fed cautious for longer.

Today's economic highlights:

See the full calendar here.

  • Dollar index: 99.297
  • Gold: $4,388
  • Crude Oil (BRENT): $94.96 (WTI) $91.33
  • United States 10 years: 4.50%
  • BITCOIN: $73,525

In corporate news:

  • Nvidia CEO Jensen Huang joins Tsinghua University Board.
  • China fines Apple supplier Luxshare for antitrust violations in its Wingtech acquisition.
  • Meta starts rollout of subscriptions for Facebook and Instagram.
  • CVS restores coverage for Eli Lilly's obesity drug Zepbound.
  • Snowflake soars 37% in after-hours trading following its quarterly results.
  • Salesforce falls 1.2% in after-hours trading following its quarterly results.
  • Marvell falls 1.4% in after-hours trading following its quarterly results.
  • Synopsys falls 2% in after-hours trading following its quarterly results.
  • FedEx Freight is set to join the S&P 500 on 29 May, replacing EPAM Systems.
  • Microsoft has won a Pentagon contract for enterprise software worth $9.7 billion.
  • Amazon has entrusted its healthcare division to Amwell co-founder Ido Schoenberg. Furthermore, the group has given the green light to three AI-generated children's series.
  • Meta is launching paid subscription plans for Instagram, Facebook and WhatsApp.
  • GE Aerospace is seeing demand for engine maintenance hold up despite rising kerosene prices.
  • Wells Fargo anticipates double-digit growth in corporate and investment banking and trading.
  • NextEra shareholders reject the proposal to align with the Paris Agreement.
  • Boeing has secured an $854.7 million contract extension with the Navy for P-8A aircraft.
  • Denso is stepping up its R&D to reduce its reliance on rare earths in its automotive components.
  • Toyota Motor is recalling 82,000 vehicles in the US due to a software fault in the dashboard display.
  • Today's key earnings reports: Costco, Dell, Autodesk, NetApp, MongoDB, Burlington Stores, Dollar Tree, Li Auto Inc., XPeng Inc., Best Buy, Hormel Foods Corporation, ICON Public Limited Company, The Gap...

Analyst Recommendations:

  • Baxter International Inc.: Citi downgrades to sell from neutral and reduces the target price from USD 19 to USD 17.
  • Boston Scientific Corporation: Wells Fargo downgrades to market weight from overweight and reduces the target price from USD 75 to USD 55.
  • Corning Incorporated: Zacks downgrades to neutral from outperform and reduces the target price from USD 239 to USD 225.
  • Dick's Sporting Goods, Inc.: JP Morgan upgrades to overweight from neutral and raises the target price from USD 240 to USD 270.
  • Dominion Energy, Inc.: Jefferies upgrades to buy from hold and raises the target price from USD 65 to USD 76.
  • Electronic Arts Inc.: Argus Research Company downgrades to hold from buy.
  • Emcor Group, Inc.: Zacks downgrades to neutral from outperform and reduces the target price from USD 1047 to USD 904.50.
  • Ionq, Inc.: Baptista Research downgrades to underperform from buy and reduces the target price from USD 70.30 to USD 62.40.
  • Lyondellbasell Industries N.v.: Wells Fargo upgrades to overweight from equalweight and raises the target price from USD 80 to USD 98.
  • Mueller Industries, Inc.: NorthCoast Research downgrades to neutral from buy.
  • Omnicom Group., Inc.: Rothschild & Co Redburn initiates coverage with a neutral rating and a target price of USD 89.
  • The Trade Desk, Inc.: Rothschild & Co Redburn initiates coverage with a sell recommendation and a target price of USD 11.