Weekly market analysis: inflation and earnings under the spotlight

The stock market is pricing in smooth disinflation, but valuations require greater precision on macro and earnings

• 📊 The S&P 500 closed at 7,398.93 on Friday, May 8, and the Nasdaq Composite at 26,247.08, both at new cycle highs.
• 🏦 The U.S. jobs report showed 115,000 nonfarm payrolls versus 178,000 previously, with unemployment steady at 4.3%, reinforcing the reading of an orderly cooling.
• ⚠️ The Euro Stoxx 50 closed at 5,911.53 and the IBEX 35 at 17,889.40; Europe is holding up, but sensitivity to rates, spreads, and energy remains high.

What happened this week

Friday closes: highs in the U.S. and Europe still solid, with sufficient breadth but not exuberant

Wall Street ended the session on Friday, May 8 with the S&P 500 at 7,398.93 points, a weekly gain of 2.33%, with the close at 22:46 CEST. The Nasdaq Composite closed at 26,247.08, with a weekly gain of 4.51%, at 23:15 CEST.

In Europe, the Euro Stoxx 50 closed at 5,911.53 on Friday, May 8, while the IBEX 35 ended at 17,889.40. The European tone was more mixed than the U.S. one, but the absolute level remains consistent with an expansion phase, not one of stress.

The breadth reading was reasonable. The Russell 2000/S&P 500 ratio stands at around 0.38, taking as a reference the close of the S&P 500 and the reference level of the Russell 2000. In addition, the VIX closed near 17 points, a combination consistent with risk appetite. The bullish bias is there, but it still depends on the broad market keeping pace with technology.

Macro of the week: U.S. employment cools without breaking, and that supports the rates narrative

The dominant macro data point was the U.S. labor report on Friday, May 8. Nonfarm payrolls increased by 115,000 jobs, below the previous 178,000, while the unemployment rate held at 4.3%. The signal is clear: the labor market is losing momentum, but it is not deteriorating abruptly.

For risk assets, this combination is positive in the short term. Weaker employment reduces pressure on the Federal Reserve. An orderly deterioration supports high multiples. The nuance is important: if the slowdown extends to wages and consumption, the reading would shift from benign disinflation to lower nominal growth.

Europe is watching that figure with direct interest. European banks may benefit from less aggressive curves, but they do not live on high rates alone. Delinquencies, credit quality, and sovereign spreads also matter. If the U.S. cooling drags down global expectations, Santander and BBVA retain support from net interest income, though with greater sensitivity to the cost of risk.

Cross-asset: firm euro, more contained crude, and a thin equity risk premium

In currencies, EUR/USD is trading around 1.17, a level consistent with expectations of a rate differential less favorable to the dollar. In fixed income, the 10-year Treasury is hovering around 4.9%, still too high to justify unlimited multiple expansion.

In commodities, Brent is moving near $95.93 and gold at $4,730.20. A less stressed Brent supports industrial margins and consumption. Gold at such elevated levels indicates that demand for monetary and geopolitical hedging remains alive.

Relative valuation remains the central issue. With the S&P 500 at 7,398.93 and our own estimate of 2026 forward EPS around $297, the implied P/E stands near 24.9x. The resulting earnings yield is 4.02%. Against a 10-year Treasury near 4.90%, the ERP falls to -0.88%. That negative premium does not invalidate the rally, but it does require earnings and disinflation to keep delivering.

What could move the market next week

Corporate earnings: Cisco and Applied Materials will gauge tech spending and industrial capex

Next week loses intensity in terms of volume, but it still offers useful events to validate the cycle. The market will watch Cisco Systems on Wednesday, May 13, presumably after the Wall Street close, and Applied Materials on Thursday, May 14, also in the U.S. afternoon. In Madrid time, that places the references from the evening onward.

Cisco serves to measure the pulse of corporate spending on networking and equipment. Applied Materials is more sensitive to the investment cycle in semiconductors and manufacturing capacity. If both confirm firmness, Nvidia, ASML, and the chip equipment complex will maintain support. If guidance disappoints, the risk is multiple compression across the whole chain.

Base case (55%): solid figures and prudent guidance, with a neutral or moderately positive reaction in semis and software. Bullish case (25%): clear improvement in orders and capex, extending the rally toward tech industrials. Adverse case (20%): weakness in business demand, falling orders, and rotation into defensives.

Macro: U.S. CPI is in charge and will be the central reference for bonds, the dollar, and valuation

The main macro reference will be U.S. CPI on Tuesday, May 12. The market calendar places that release at the start of the week, followed by PPI on Wednesday, May 13 and other activity and sentiment figures during the latter part of the week. In Madrid time, CPI will presumably be released at 14:30 CEST, the usual slot for U.S. inflation data.

The reason is simple. With the S&P 500 trading near 25 times forward earnings, every tenth of a point in inflation changes the slope of bonds and the discount applied to technology. A benign figure can support the Nasdaq. A hot figure would lift real yields and pressure duration assets. Utilities such as Iberdrola also depend on the cost of debt, a key factor for their relative valuation.

Base case (50%): CPI in line or one tenth below, with a stable Treasury, a softer dollar, and selective continuity in equities. Bullish case (20%): clearly moderate inflation, falling yields, and a broadening of the rally to small caps and consumer stocks. Adverse case (30%): upside surprise, rise in the 10-year yield, pressure on growth, and better relative performance from banks, energy, and the dollar.

Geopolitics: oil, Iran, and global supply will continue to shape market sensitivity

Geopolitics maintains a direct impact through the energy channel. Last week the market operated on the idea of lower tension around Iran and possible relief on crude supply, a reading that helped moderate oil and support equities. That transmission mechanism is immediate: less risk premium in Brent, less pressure on inflation, and less punishment for consumption and bonds.

The effect is not linear. Brent $5 higher worsens inflation expectations and pressures airlines, transport, and discretionary consumption. It also alters Europe’s external accounts. By contrast, integrated energy companies and some banks perform better if the shock does not damage growth. For Europe, in addition, a rise in crude would increase sensitivity around peripheral spreads.

Base case (60%): contained tension, Brent stabilized in the mid-$90 area, and tactical support for global equities. Bullish case (15%): further easing and lower crude, with improvement in consumption, transport, and bonds. Adverse case (25%): renewed geopolitical rebound, Brent above $100, and defensive rotation toward gold, the dollar, and energy.

Conclusion

The market picture remains constructive, but less comfortable than the highs suggest. Wall Street closed Friday, May 8 with clear strength and the Nasdaq once again led. Even so, the truly institutional signal lies in relative valuation. With a negative ERP, equities are no longer rising because they are cheap. They are rising because the market is pricing in a very specific combination: easing inflation, resilient earnings, and no energy shock. As long as that triangle holds, bullish biases can keep working, especially in quality technology, semiconductors, and well-capitalized banks.

The base thesis is invalidated if CPI surprises to the upside and pushes the Treasury sharply higher, or if geopolitics sends Brent back into triple-digit territory. In that case, the adjustment would hit long-duration growth first and then cyclical Europe. The most logical hedges remain gold, tactical exposure to the U.S. bond if inflation disappoints to the downside, and a more defensive bias in sectors with cash-flow visibility. In Spain, utilities and stable consumer names can cushion the blow, although for utilities the cost of debt remains the decisive variable for the multiple.

This article is general financial information and does not constitute investment advice.