Last Week on Wall Street - Week of May 26th

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Last Week 

on Wall Street 

LEAD   MARKETS & MACRO  ·  BY THE WATERLOO RESEARCH DESK 

Nine in a Row, and the Bill for It Is Starting to Arrive

Nine straight winning weeks for the S&P. The Dow crossed 51,000 for the first time in its history on Friday, the Nasdaq capped off an 8% month of May, and the Russell 2000 spent most of the short holiday week within reach of 3,000. It was a four-day week by the calendar, but the market made it feel longer: Dell delivered a quarterly result so far past consensus it sent Morgan Stanley's hardware analyst into print to say his team had gotten it wrong; Snowflake posted the strongest sequential dollar growth in its history alongside a $6 billion AWS commitment; and a tentative U.S.-Iran memorandum of understanding, still awaiting President Trump's signature, gave energy traders another reason to keep selling crude. 

The one instrument that did not join the celebration was the 10-year Treasury. Yields rose roughly 14 basis points on the week, finishing near 4.44%, as Thursday's PCE report confirmed that the Fed's preferred inflation gauge hit 3.8% in April, its worst reading since May 2023. Americans' personal saving rate dropped to 2.6%, the lowest since June 2022. The inflation story and the AI-driven equity rally have been running in parallel for two months now, with equities focused on the former and bond traders focused on the latter. This week, both sides printed new data to work with: the equity bulls got Dell and Snowflake; the bond bears got PCE. 

For diversified portfolios, the tension between these two running narratives matters more now than it did three months ago. Nine weeks ago, the dominant question was whether the market would recover from the Iran war shock. That question has been answered. The new question is whether the recovery has gone far enough, fast enough, that the inflation it is generating starts to do real work against the portfolio. A VIX at 15.74 and a 10-year above 4.40% are not obviously compatible unless the ceasefire holds and energy prices keep sliding, which is still, as of Friday, a question rather than a fact. 

STORY 01  EARNINGS  ·  AI INFRASTRUCTURE 

Dell Reported $44 Billion in a Quarter and the Street Said It Got the Story Wrong

Dell's Infrastructure Solutions Group, the division that builds and sells AI servers, grew roughly 180% year over year. The consensus model had nothing like that number in it. Revenue came in nearly $8 billion above what analysts expected; guidance for the full year was raised by more than analysts had projected for the entire quarter. COO Jeff Clarke said on the call that demand exceeded the company's expectations across every geography and every line of business, which is the kind of statement that tends to end the meeting early. 

Snowflake reported the same night and also ran past estimates, and the two prints together lifted the infrastructure complex through the long weekend. The pattern is consistent enough now that it is worth naming: the companies actually moving AI hardware and data are not operating on the adoption curve that the models assumed. Dell booked more AI orders in one quarter than most analysts thought the company would book in a year. Whether that pace holds is a different question; that it happened is not in dispute. 

Source: CNBC: Dell shocked Wall Street on booming AI server sales →

STORY 02  GEOPOLITICS  ·  ENERGY MARKETS 

A 60-Day Memorandum Is on the Table. The Strait Is Not Open Yet.

Multiple outlets reported the framework Thursday, with U.S. officials confirming its broad outline to Al Jazeera, CNN, and PBS. Pakistan has been the primary mediator since the ceasefire began in April. Treasury Secretary Bessent said Thursday that oil prices could come down quickly once the deal is signed. Crude had been drifting lower most of the week in anticipation; WTI settled near $88 on Friday, about $6 below the prior week's close. 

The distance between "largely negotiated" and "signed" turned out to be significant. VP Vance told reporters Friday the two sides were very close but not there yet. Iranian state media called reports of a finalized deal incorrect. Fresh Hormuz attacks earlier in the week had not fully faded from memory. Energy traders, having already given back much of the war premium over the past three weeks on earlier ceasefire optimism, were not inclined to price the finish line before someone actually crossed it. 

Source: PBS NewsHour: U.S. and Iran reach tentative deal to extend ceasefire →

 ·   OTHER THINGS WORTH KNOWING   ·  

Around the Water Cooler

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