Last week’s economic data felt like a roller coaster ride. Ultimately, the key events favored economic growth and that’s a good thing going forward, even though it likely pushes back on rate cuts coming sooner than later. Equity investors seemingly took the data in stride despite the bond market’s reaction on Friday.

The positive news flow began when the May flash PMIs came in notably strong with both manufacturing and services showing significant gains. Jobless claims also stabalized back under the 220k mark, New Orders for Non-Defense Capital Goods ex-Aircraft (NDCGXA) showed business spending plateauing but not declining while the revised Q1 GDP showed solid growth at 1.3%. From an economic activity perspective, this was all “good news”. Last week, the Core PCE Price Index met expectations at a 2.8% year-over-year increase, easing investor concerns about inflation and not altering expectations for Fed rate cuts.

Last week, stocks soared to record highs as traders embraced cooler inflation data. The Dow Jones Industrial Avereage surged above 40,000 for the first time ever while several other major indices posted fresh new highs as well.

With approximately 90% of S&P 500 companies having disclosed their first-quarter earnings, profits may be poised to expand by as much as 10% this year, barring no unexpected events. If so, this would far exceed analysts’ (and many corporate executives’) expectations and reiterates the fact that there is more to the markets narrative than meets the eye. In this era where every piece of data is seemingly scrutinized for its potential impact on Federal Reserve policy, corporate profits tends to get overlooked, but not in the past couple of weeks.

Markets began stabilizing on Monday as fears over escalating conflicts between Israel and Iran subsided and what appeared to be a short covering rally from technical levels ensued. Tuesday saw a further boost with positive earnings reports from a few of the core cyclical names, but the momentum slowed on Wednesday.