Stocks Rally on Easing Geopolitical Tensions and AI Enthusiasm

The S&P 500 Index ($SPX) (SPY) on Friday closed up +0.22%, the Dow Jones Industrial Average ($DOWI) (DIA) closed up +0.72%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.36%.  June E-mini S&P futures (ESM26) rose +0.19%, and June E-mini Nasdaq futures (NQM26) rose +0.31%.

Stock indexes settled higher on Friday, with the S&P 500, Dow Jones Industrials, and the Nasdaq 100 posting new all-time highs.  Stocks are supported by prospects for a peace deal in the Middle East, which are easing pressure on crude oil prices and reducing inflation concerns.  Also, evidence of relentless demand for AI-infrastructure upgrades is pushing technology stocks higher, led by a 32% surge in Dell Technologies on Friday after it gave a sales outlook that far surpassed analysts’ estimates. 

The markets are awaiting President Trump’s approval of a preliminary deal between the US and Iran to extend a ceasefire by 60 days and reopen the Strait of Hormuz.  President Trump said Friday he's making a "final determination" on a preliminary deal to extend a ceasefire with Iran. 

Friday’s US economic news showed strength in the economy that is positive for stocks.  The May MNI Chicago PMI rose +13.5 to 62.7, stronger than expectations of 50.3 and the strongest pace of expansion in 4.25 years.

Fed comments on Friday were mixed for stocks and bonds.  On the positive side, San Francisco Fed President Mary Daly said Fed interest rate policy is in a good place and that she's "cautiously optimistic" about the US economy, noting that "there's no urgency to make an adjustment" to interest rates. Also, Minneapolis Fed President Neel Kashkari said, "I think it's premature for me to conclude we need to be raising rates right away and that we need to keep watching the data and watching how the conflict in the Middle East unfolds before I want to make any adjustments."

On the negative side, Kansas City Fed President Jeff Schmid said, "With inflation running above the Fed's 2% definition of price stability or over five years, now is not the time to let down our guard, and we must continue to signal our commitment to price stability and our willingness to take the actions necessary to achieve our mandate."

Crude oil prices fell more than -1% on Friday to a 5-week low as the US and Iran tentatively agreed to extend a ceasefire by 60 days, fueling optimism that the Strait of Hormuz may soon reopen.  Even if a truce extension is agreed, several hurdles remain before crude flows can resume.  Among them, mines in the Hormuz waterway must be removed, shut-in oil fields may take months to restart, and damage to energy infrastructure from drone and missile strikes needs to be repaired.

The markets are discounting a 2% chance of a -25 bp FOMC rate cut at the next FOMC meeting on June 16-17.

The generally favorable Q1 earnings season is winding down.  As of Friday, 84% of the 485 S&P 500 companies that reported Q1 earnings have beaten estimates.  Q1 S&P 500 earnings are projected to climb +12% y/y, according to Bloomberg Intelligence.  Stripping out the technology sector, Q1 earnings are projected to increase around +3%, the weakest in two years.

Overseas stock markets settled mixed on Friday.  The Euro Stoxx 50 closed down -0.08%.  China's Shanghai Composite closed down -0.73%. Japan's Nikkei Stock Average rallied to a new record high and closed up +2.53%.

Interest Rates

June 10-year T-notes (ZNM6) on Friday closed up +1 tick.  The 10-year T-note yield rose +0.2 bp to 4.449%.  Friday’s decline in WTI crude oil prices to a 5-week low eased inflation expectations and supported modest gains in T-notes.  Also, bond dealer short covering was supportive of T-note prices as dealers covered their short positions placed against T-notes to hedge against the Treasury’s $215 billion T-note auctions over this past week. 

Gains in T-notes were limited after the May MNI Chicago PMI rose more than expected at the strongest pace in 4.25 years.  Also, Friday’s rally in the S&P 500 to a new record high reduced safe-haven demand for T-notes.

European government bond yields moved lower on Friday.  The 10-year German Bund yield fell -2.4 bp to 2.938%.  The 10-year UK gilt yield fell -0.2 bp to 4.812%.

German May CPI (EU harmonized) fell -0.1% m/m and rose +2.7% y/y, weaker than expectations of unchanged m/m and +2.8% y/y.

The German May unemployment change unexpectedly fell by -12,000, showing a stronger labor market than expectations of a +10,000 increase. The May unemployment rate unexpectedly fell -0.1 to 6.3%, showing a stronger labor market than expectations of no change at 6.4%.

ECB Governing Council member Fabio Panetta signaled his support for an ECB rate hike, saying, "The forward-looking picture system seems to call for a recalibration of the monetary policy stance to counter the risk of persistent inflationary tensions."

ECB Governing Council member Gediminas Simkus said he's likely to support an ECB rate hike in June and "a second rate hike is more likely than not."

Swaps are discounting an 89% chance of a +25 bp ECB rate hike at its next policy meeting on June 11.

US Stock Movers

Software stocks rallied on Friday, as Atlassian Corp (TEAM) closed up more than +15%, ServiceNow (NOW) closed up more than +13%, and International Business Machines (IBM) closed up more than +12% to lead gainers in the Dow Jones Industrials.  Also, Workday (WDAY) closed more than +11% to lead gainers in the Nasdaq 100, and Oracle (ORCL) closed up more than +10%.  In addition, Datadog (DDOG) and Palantir Technologies (PLTR) closed up more than +9%, and Salesforce (CRM) closed up more than +8%.  Finally, Adobe Systems (ADBE) closed up more than +7%, and Microsoft (MSFT) and Intuit (INTU) closed up more than +5%. 

Okta (OKTA) closed up more than +30% to lead cybersecurity stocks higher after reporting Q1 adjusted EPS of 91 cents, above the consensus of 85 cents, and raising its 2027 adjusted EPS forecast to $3.79 to $3.87 from a previous estimate of $3.74 to $3.82, better than the consensus of $3.78.  Also, Palo Alto Networks (PANW) closed up more than +9%, and CrowdStrike Holdings (CRWD) closed up more than +8%.  In addition, Zscaler (ZS) closed up more than +7%, and Cloudflare (NET) and Fortinet (FTNT) closed up more than +6%.

AI-infrastructure stocks were stronger on Friday, providing support to the broader market. Micron Technology (MU) and ARM Holdings Plc (ARM) closed up more than +5%, and Broadcom (AVGO) closed up more than +4%.  Also, Qualcomm (QCOM) and Sandisk (SNDK) closed up more than +3%. 

Dell Technologies (DELL) closed up more than +32% to lead gainers in the S&P 500 after reporting Q1 total revenue of $43.84 billion, well above the consensus of $35.52 billion and raising its 2027 revenue forecast to $165 billion to $169 billion from a previous estimate of $138 billion to $142 billion, stronger than the consensus of $142.12 billion. 

NetApp (NTAP) closed up more than +22% after reporting Q4 net revenue of $1.95 billion, better than the consensus of $1.87 billion, and forecasting 2027 revenue of $7.33 billion to $7.58 billion, well above the consensus of $7.20 billion.   

Nextpower (NXT) closed up more than +14% after agreeing to buy Prevalon Energy for up to $365 million in cash and stock. 

The Gap (GAP) closed down more than -15% after reporting Q1 comparable sales rose +2.00%, weaker than the consensus of +2.93%, and cutting its 2027 net sales estimate to +1% to +2% from a previous forecast of +2% to +3%.

American Eagle Outfitters (AEO) closed down more than -11% after reporting Q1 total comparable sales rose +8.00%, below the consensus of +8.48%. 

SentinelOne (S) closed down more than -8% after reporting Q1 revenue of $276.7 million, below the consensus of $277.3 million, and forecasting Q2 revenue of $289 million to $291 million, weaker than the consensus of $292.1 million. 

Clorox (CLX) closed down more than -6% to lead losers in the S&P 500 after CEO Rendle Blair said she is stepping down for health reasons.

Viasat (VSAT) closed down more than -6% after reporting Q4 revenue of $1.17 billion, weaker than the consensus of $1.19 billion. 

Costco Wholesale (COST) closed down more than -3% despite reporting better-than-expected Q3 earnings after several analysts flagged moderating membership growth as a concern going forward.

Autodesk (ADSK) closed down more than -3% after several analysts said the company’s $3.6 billion purchase of MaintainX was deemed too expensive. 

Earnings Reports(6/1/2026)

Credo Technology Group Holding (CRDO), Hewlett Packard Enterprise Co (HPE), Science Applications International Corp (SAIC), Smith-Midland Corp (SMID).