Equities Leap to 3rd Consecutive All-Time High but Then Reverse as US Awaits Iran Response: May 7, 2026

Equities leaped to all-time highs for the third consecutive session this morning before reversing into the red as the US awaits an Iranian response to the White House’s one-page proposal. The answer, to be delivered by Pakistani mediators, is expected either today or tomorrow. And the risk appetite on this Thursday is increasingly narrower than normal, as tech leads the charge against the backdrop of McDonald’s, Whirlpool and Maersk earnings calls that included warning signals of significant macroeconomic headwinds. Indeed, communication services is the other 1 of the 11 major sectors participating in the cautious advance. In fixed-income, yields are rising even as oil prices plunge with lighter-than-expected unemployment claims bolstering cyclical optimism, although that was countered by a more worrisome labor report from Challenger, Gray & Christmas. Gains in separate productivity and construction spending releases also contributed to the lift in rates, as the curve points to the next Fed move being a hike rather than a cut. Elsewhere, non-energy commodities are climbing, volatility protection instruments and the greenback are near their flatlines.

Unemployment Claims Point to Labor Market Stability

A 27-month low in continuing unemployment claims added further evidence of a stable labor market, as fewer idle individuals had trouble landing jobs. The 1.766 million ongoing applications occurring in the week ended April 25 arrived beneath the median estimate of 1.8 million and the prior period’s 1.776 million. Initial filings were also below expectations, coming in at 200k for the seven-day timespan culminating on May 1 compared to the 205k projected but above the previous interval’s 190k.  Four-week moving averages sunk on both fronts to subdued levels of 203.25k and 1.790 million, respectively. A separate report from Challenger, Gray & Christmas was less positive, however, as April worker reductions totaled 83.39k, higher than the 60.62k level from March. AI related payroll decreases contributed mostly to the decline.

March Construction Spending Strengthens

March construction spending grew 0.6% month over month (m/m) as residential new builds drove a recovery from February’s decline. The result beat the expected 0.2% gain with the single-family segment rising 2.7% while multis expanded by 0.3%, offsetting the non-residential category’s 0.2% decrease.

Productivity Improves but Misses Expectations

Productivity expanded at an annualized rate of 0.8% in the first quarter of this year, missing the 1.4% consensus estimate and falling below the 1.6% from the prior period. All sectors experienced improvements, however, with durable goods, nondurable goods and business seeing 5.3%, 2% and 0.6% gains.

Oil Shock Charges Up EV Demand

Used car prices dropped 1.6% m/m in April, their first decline of the year, as rising gas prices lifted interest in electric vehicles (EVs). After March’s overall increase of 1.4%, last month saw EV stickers up 1.4% while traditional engines experienced a 2.2% slip. On a year over year (y/y) basis, both categories saw gains of 7.2% and 1.1% respectively.

Stocks Reverse from Records

Stocks reversed from records after oil pared some of its decline ahead of an expected Iranian decision concerning a US peace deal. Part of the significant U-turn was a reaction negative commentaries on earnings call related to waning consumer spending capacity and accelerating inflationary pressures. Certain cyclical firms are worried that households will fail to sustain expenditure patterns at a time when heavier input costs push corporates to pass them on to shoppers. The effort to preserve margins in this environment will be a challenge, however, it explains why investors have been gravitating towards tech names while neglecting economically delicate, rate sensitive ones.

International Roundup

Retail Sales Weaken in Europe

March retail sales volumes sank 0.1% m/m in the euro area but were still up 1.2% from the year-ago period, according to preliminary data from Eurostat. Sales volumes relative to February exceeded the economist consensus estimate for a repeat of the prior period’s 0.3% m/m decline. The y/y metric, encouragingly, was stronger than the estimate for 1% growth but it weakened modestly from February’s 1.3% print. Food, drinks and tobacco sales volume sank 0.3% m/m and automotive fuel at specialized stores fell 1.6%. Conversely, the non-food products except automotive fuel category was 0.6% higher than in February.

BoJ Minutes Point to Further Tightening

Minutes from the Bank of Japan’s March rate-setting meeting reveal a majority of members believe that moving away from the central bank’s loose monetary policy is appropriate. Some members explained that inflation had eased to around 2% in response to both government programs to lower energy costs and declining food expenses. Some members anticipate that inflation may decelerate to below 2% in the short term but eventually increase due to a labor shortage creating wage pressures and higher crude oil prices.

Australia Produces Surprise Trade Deficit

The global reach of artificial intelligence sparked an unexpected March AUD 1.84 billion trade deficit in Australia with imports of technology products soaring while exports weakened. Economists anticipated that exports would exceed imports by AUD 4.33 billion following the February AUD 5 billion surplus, but purchases of automatic data equipment jumped 204% while demand for energy commodities from foreign markets also climbed. The value of aviation fuel and diesel acquired from abroad, for example, was up approximately 42% m/m in response to a refinery fire in Victoria crimping local supplies. Those factors caused imports to jump 14.1% m/m, a considerable reversal from February’s 2.7% contraction. In another reversal, the value of goods sent to foreign markets sank 2.7% following February’s ascent of 4.2%. Weaker exports of metal ores, coal and sugar accounted for the decline, which was only partially offset by foreign customers increasing their purchases of mineral fuel.