U.S. equity markets moved higher during the week, supported by stronger-than-expected corporate earnings and continued investor enthusiasm around artificial intelligence (AI).
By May 7, nearly 85% of S&P 500 companies had reported quarterly earnings, with most surpassing analyst expectations.
Technology stocks led the gains, particularly companies linked to AI infrastructure and digital innovation, while energy and utilities sectors lagged behind.
Economic data indicate that the U.S. labour market remains relatively resilient, although signs of moderation are emerging.
Weekly unemployment claims came in below expectations, while continuing claims fell to their lowest level since 2024. In addition, the U.S. economy added 115,000 jobs in April, significantly above forecasts, with healthcare, transportation, retail, and warehousing contributing strongly to employment growth.
However, workforce participation fell to its lowest level since 2021, suggesting some underlying weakness beneath the headline numbers.
Layoffs in the technology sector also continued to rise, with many companies citing AI-driven restructuring and efficiency measures as key reasons for workforce reductions. Meanwhile, labour productivity growth slowed in the first quarter compared to late 2024, although year-over-year productivity remained positive.
Other economic indicators painted a more encouraging picture. Construction spending rebounded in March, supported by growth in single-family housing projects, while factory orders increased on stronger demand for electronic products and AI-related infrastructure.
Despite these positive developments, consumer sentiment weakened sharply. The University of Michigan’s consumer sentiment index fell to a record low as concerns around inflation, tariffs, and rising fuel prices continued to weigh on households. Overall, markets remain optimistic about corporate profitability and AI-driven growth, but consumer confidence and labour market participation remain areas to watch closely.
European Markets: Inflation and Trade Concerns Shape Sentiment
European markets ended the week with modest gains despite ongoing geopolitical and economic uncertainty. Early optimism was supported by easing tensions in the Middle East and resilient corporate earnings across the region. However, market sentiment weakened later in the week following renewed tariff threats from U.S. President Donald Trump, who warned of significantly higher tariffs on European goods if trade barriers were not reduced.
Among major European indexes, Germany’s DAX and Italy’s FTSE MIB posted gains, while France’s CAC 40 remained largely unchanged. The UK’s FTSE 100 declined over the week as investors reacted cautiously to both domestic and global developments.
Inflation remained a major focus for investors and policymakers. Comments from officials at the European Central Bank (ECB) suggested that another interest rate increase could still be possible if inflation does not show sustained improvement. Producer prices across the eurozone rose sharply in March, recording the strongest monthly increase in more than four years, largely driven by higher energy costs.
Germany, Europe’s largest economy, showed mixed signals. Factory orders surged by 5% in March, well above expectations, driven by strong demand for electrical equipment, mechanical engineering products, and technology-related goods. However, Germany’s construction sector weakened significantly, highlighting ongoing challenges within the broader economy.
Elsewhere in Europe, Spain’s industrial production returned to growth after several months of contraction, supported by consumer goods demand. In the UK, business activity also improved, with both manufacturing and services sectors showing expansion according to the latest Purchasing Managers’ Index data.
Overall, European markets continue to balance inflation concerns, central bank policy expectations, and geopolitical uncertainty. While corporate performance and industrial activity have remained relatively resilient, rising energy prices and trade tensions continue to present risks for the region’s economic outlook.
Asia Markets: AI Momentum and Trade Stability Support Growth
Asian markets delivered a generally positive performance during the week, led by gains in Japan and China. Investor optimism was largely driven by continued enthusiasm around AI-related industries, easing geopolitical tensions, and expectations of greater stability in global trade relations.
In Japan, equity markets rallied strongly following the Golden Week holiday. Technology and semiconductor companies led gains as investors continued to position themselves around rising AI demand. Falling oil prices also provided relief for Japan’s import-dependent economy by easing concerns around energy costs and supply chain disruptions.
Japan’s economic data also showed encouraging trends. Real wages increased for a third consecutive month for the first time since 2021, suggesting that wage growth may finally be outpacing inflation. This development supports expectations that the Bank of Japan may continue gradually normalising monetary policy after years of ultra-loose conditions.
In China, markets advanced as investors responded positively to signs of resilient domestic demand and improving U.S.-China trade dialogue. China’s services sector expanded faster than expected in April, supported by stronger consumer activity and business growth. Hong Kong technology shares also benefited from optimism surrounding potential agreements on AI safeguards and supply chain cooperation ahead of upcoming discussions between U.S. and Chinese leaders.
However, challenges remain. While holiday travel activity in China increased, spending per traveller declined slightly, indicating that consumers are still cautious about discretionary spending despite stable economic activity.
Looking ahead
Investors will continue monitoring inflation trends, central bank decisions, geopolitical developments, and global trade negotiations as key drivers shaping market sentiment in the weeks ahead.
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