Weekly Market Commentary
The dominant story of the week was a sharp reversal in the U.S. Dollar Index, which broke out to new immediate-term highs after weeks of bearish price action. The dollar finished the week up +1.4%, and the market is already recalibrating around it. The 30-day inverse correlation between the dollar and SPX now sits at -0.71, down from -0.95 a month ago, meaning a rising dollar is a less severe headwind to equities today than it would have been, though sustained strength would still pressure risk assets and real asset hedges.
The rate market delivered its own statement. The 30-year Treasury yield closed at its highest level since 2007, with the 2-year and 10-year also printing new cycle highs. April CPI accelerated +55 basis points to +3.81% year-over-year, and the bond market is finally pricing what the data has been saying for months, that inflation is not receding on schedule. Long-term Treasury bonds fell sharply on the week, with TLT down -2.5%.
Against that backdrop, equity market performance was narrow. SPY hit its 18th all-time closing high of 2026 intraweek before pulling back on Friday. Energy, Staples, and Financials were the only three sectors in positive territory for the week, gaining +8.74%, +2.03%, and +0.97%, respectively. The Quad 2 Reflation trade continued to broaden, with Brent crude surging +8.6% week-over-week and energy stocks broadly outperforming. Small caps (Russell 2000, -2.34%) and international equities (MSCI ACWI Ex-USA, -1.80%) bore the brunt of the selling, in part a direct consequence of dollar strength.
NVIDIA reports earnings on Wednesday and will serve as the most important single data point of the week, offering a real-time read on the AI capital expenditure cycle and semiconductor demand at a moment when high-beta growth leadership has pulled back. FOMC Meeting Minutes, also on Wednesday, will add texture to the rate narrative; the bond market has already moved, but Fed language that acknowledges the inflation reacceleration would further validate the current environment. Thursday's data calendar is dense, with Philly Fed Manufacturing, Initial Jobless Claims, Housing Starts, and Building Permits all releasing in the same morning session, and housing has been under sustained pressure with the current rate environment offering no relief there.
Beyond the data calendar, markets enter the week following one of the largest options expiration events of the year, with over $2.25 trillion in index-linked contracts having settled on Friday. As that hedging activity rolls off, conditions are in place for a new market trend to take hold. Whether the dollar breakout sustains and how equity markets respond to persistently higher rates will be the most important tests heading into the back half of May.
The Hedgeye GIP Model is nowcasting three consecutive monthly Quad 2s, an environment of accelerating growth and accelerating inflation, and last week's data confirmed rather than challenged that setup. We continue to position for Quad 2, long energy, long cyclicals, and long domestic small and mid caps, which we added to this week. The dollar breakout is the key variable to monitor near-term, as tightening inverse correlations with both equities and gold signal that the easy tailwinds from dollar weakness are behind us. We remain short duration and will continue to assess our international exposures as the dollar trend develops. The regime has not changed.
If you have any questions about the above, please reach out to us to set up a one-to-one meeting so we can review your situation.
Sincerely,
President
SBC Investment Management
P: (602) 641-5996 · M: (319) 520-2033 · E: bandrus@sbcinvestmentmanagement.com
Investment Analyst, Junior Portfolio Manager
SBC Investment Management
P: (435) 775-2950 · M: (435) 590-8317 · E: jrehkop@sbcinvestmentmanagement.com