Wall Street just wrapped up its best month in six years in the face of a divided Federal Reserve as well as sticky inflation and the ongoing conflict in the Middle East.
Now the secret weapon, while a $700 billion AI spending spree by big tech that is rewiring the US economy.
But under the hood, the engine might be sputtering.
First quarter GDP just missed the mark as oil prices choked the American consumer.
Meanwhile, Wall Street is suddenly punished. tech giants like meta and Microsoft for their massive data center bills proving the AI honeymoon may be easing.
Well joining us on this Friday morning to weigh on weigh in is chief macro strategist at Group happy Friday.
Thank you so much for joining us.
Stocks just posted a massive April rally.
So what do you make of what we're seeing both in the economy as well as the US stock market? one phrase, Remy, which is the AI wave continues.
When we started the year, we talked about riding that wave, and the wave doesn't mean everyone's a winner, to your point.
I mean, you mentioned a couple of stocks, Microsoft Meta, getting punished because of their data center buildouts.
But you know, one overarching principle I like to keep in mind is one company's spending is another company's revenue and profits, and that's Pretty much why I think the stock market is at all-time highs.
The S&P 500 is almost up 6% year to date.
I mean, the markets opened positive as well.
Now you can break down the market return into how much it's coming from profits, profit growth, expected profit growth.
About 10% points is coming from profit growth, dividends adding another 0.5% or something like that.
The drag has been multiples, multiples.
Contracted and that's because, you know, earnings expectations have gone up.
Multiples have contracted by about 4.5% points or so.
So the big driver of the stock market to all-time highs have been profits, and that gets to what's driving profits.
You have two things.
One is sales growth.
Sales growth is closely tied to nominal GDP growth.
Nominal GDP growth we saw yesterday up 5.6% annualized pace, Remi, in Q1.
Over the last five quarters it's averaged about 5.4% annualized pace.
The trend growth over the last decade was about 4%.
We are well above that.
We, this is, you know, an economy running fairly hot.
Even in terms of inflation and the other side of, you know, why profits are rising, margin expansion.
Margins have expanded to about 15.2% over the first four months of 2026.
The other side of that is one company's margin expansion is yours and my inflation.
So that's the inflation story.
So I think it's all tied together.
Yes, and so you mentioned the latest earnings.
We're paying close attention to the different sectors because we've heard from ExxonMobil as well as Chevron and also Caterpillar in addition to some of these hyperscalers.
But when we come, when it comes down to it, this week was a big week.
Not only did Get those GDP figures as well as PC, but of course the Federal Reserve.
So Sonu, I do want to get your take on what we got not just from the Fed, but the impact of Powell's statement, his decision to stay on the board, and what we can expect moving forward in terms of interest rates.
Uh, tackling the last question first, like what we can expect moving forward.
Look, I think the Federal Reserve stays pat.
They don't change rates for the rest of this year, given Kevin Warsh coming in, looks like he's set to become the Fed chair.
Powell's term runs out on May 15th.
He's going to step down as chair, but interestingly enough, he's not going to step down from the committee, and that gets to, you know, I think he values the Fed being independent. of political pressure and him staying is one way to make sure that independence stays in place and I think the rest of the committee and we saw 4 dissents to the decision to keep rates unchanged.
Now it was a little nuanced because there was one committee member Stephen Moran, who wanted to drop rates by another 0.25%, but 3 members of the committee were in the view that the next move should not be.
A cut, it could be a hike, and I think that view starts to get more widespread within the committee as long as inflation continues to stay elevated and continues to go in the wrong direction, which seems to be happening right now.
So and Powell staying in there sort of, I think, buttresses that independent view.
So you'll probably see more dissension.
In the Fed going forward over the next several meetings, but I think that means policy stays, stays unchanged.
But that also means if policy rates are staying where they are, inflation's going up.
Inflation's rising, not just because of the energy shock.
We've got AI related bottlenecks as well.
We've got, well, Sonu, I am sorry to interrupt you, but we will have to leave it there for today.
So thank you so much for joining me this morning, Sonu.
Thank you.
