The S&P 500 completed its seventh consecutive weekly gain, the longest streak since December 2023. Then Friday arrived. Bonds cracked, yields topped 4.60%, UK gilt rates hit a 28-year high, WTI surged to $105, and equities had their worst session since March. The rally was real. The risks it was pricing out were not finished.
For most of the week, markets behaved as though the inflation problem was solved. A cooler-than-expected US CPI print on Tuesday, with April headline at 0.2% month-on-month and core at 0.3%, revived rate-cut expectations and sent equities toward intraday record territory on Thursday. The S&P 500 touched above 7,450 at its peak. Tech infrastructure names led. The AI trade was firmly back on.
Then Friday happened. A sharp bond selloff, global, not just American, reminded markets that the inflation problem is not solved when WTI crude is at $105 and no end to the Iran conflict is in sight. The S&P 500 fell 1.2% on the day, the worst single session since March. Chipmakers, which had led the rally from war-driven lows, fell 4% in a day. The MSCI World Index fell 1.4%.
The week ends with the S&P technically up for the seventh straight week on a Friday-to-Friday basis, but the message from Friday is the one that matters for the week ahead. When bond yields move this fast and this broadly, equity valuations face a structural headwind regardless of how good the earnings are.
The currency moves confirmed the risk-off direction. The dollar strengthened 0.4% on the Bloomberg Dollar Spot Index. The euro fell to $1.162. Sterling fell to $1.3317 despite, or arguably because of, the UK political situation driving domestic gilt yields to a 28-year high. The yen weakened to 158.78 per dollar. Japan's 30-year yield hit 4% for the first time, adding a new front to the global bond stress story.
The bond market is the most important financial market in the world, and this week it delivered a clear message that equity markets need to hear. The selloff was not localised to the US. UK 10-year gilts hit a 28-year yield high. German 10-year yields rose 12 basis points. Japan's ultra-long bonds broke through levels not seen in a generation. When bond stress is this geographically broad, it is not a technical move or a positioning squeeze. It is a fundamental repricing of the inflation and fiscal outlook.
Lori Calvasina at RBC Capital Markets made the key observation clearly: bullish calls on stocks will be challenged if US 10-year Treasury yields hit 5%. At that level, the earnings yield on equities, effectively the inverse of the P/E ratio, is no longer sufficiently attractive relative to the risk-free rate to justify current valuations. The S&P 500 is currently priced at roughly 23 to 24 times forward earnings, implying an earnings yield of around 4.2%. A 10-year yield at 5% means investors can earn more in government bonds with no risk than they expect from equities. That is not a sustainable equilibrium.
We are at 4.60% today. The distance to 5% is 40 basis points. That is not a large cushion if the inflation data continues to surprise to the upside.
The mechanism driving yields is not complicated. WTI at $105 means energy costs are feeding through to producer prices and will feed through to CPI data over the next one to two months. The Empire State Manufacturing Index jumped to its highest reading in four years this week, indicating the real economy is not slowing. Industrial production rose 0.7% for the month. Hot activity data plus energy-driven inflation equals a Federal Reserve that cannot cut rates, and may need to consider whether it needs to raise them. The three dissenters from last month's Fed statement, Kashkari, Hammack, and Logan, are looking increasingly prescient.
President Trump confirmed this week that he did not ask Chinese President Xi Jinping to pressure Tehran on the Strait of Hormuz during their summit in Beijing. That statement was the market catalyst for Friday's crude spike. The Hormuz closure is not resolving on any near-term timeline, and the speculative premium in oil prices reflects that reality.
China's Foreign Minister Wang Yi stated that Beijing believes the strait should be reopened as soon as possible, but Chinese statements of preference carry no enforcement mechanism. Iran has no immediate incentive to reopen Hormuz while sanctions relief negotiations remain unresolved. The memorandum of understanding that appeared to be taking shape last week has not been confirmed.
WTI at $105.78 is the direct consequence of this impasse. For India, this is a significant reversal from last week's $94.71. Every dollar WTI rises above $95 represents meaningful additional pressure on India's import bill, the rupee, and the RBI's ability to maintain an accommodative stance. The $3 per litre retail fuel hike announced by oil marketing companies this week reflects this pass-through already beginning.
Despite the macro noise, several significant corporate stories from the week deserve attention.
SpaceX is seeking to file publicly for its IPO as soon as this week, choosing Nasdaq as its listing venue. This is one of the most anticipated listings in years. SpaceX's valuation has been estimated in the $350 billion range in private markets. The IPO filing will give public investors their first detailed look at the company's financials.
Bill Ackman disclosed that Pershing Square has built a new stake in Microsoft, citing the recent share price decline as an opportunity to invest in a business he considers stronger than the market currently reflects. Ackman's Microsoft investment is a signal that value-oriented institutional money is selectively stepping into high-quality technology names at current levels.
Trump confirmed that Nvidia's H200 chips came up during his discussions with Xi in Beijing, and that AI guardrails were discussed. This matters because US chip export restrictions to China remain one of the most significant constraints on Nvidia's total addressable market. Any diplomatic framework that addresses AI technology transfer will have direct implications for semiconductor valuations.
Boeing appears to have secured a Chinese aircraft order during the Trump-Xi summit, though the details on aircraft type, numbers, and timing remain unspecified. A confirmed Boeing order from China would be a significant reversal of the trade tensions that had shut Chinese carriers out of Boeing's order book.
Alphabet sold 576.5 billion yen, approximately $3.6 billion, of bonds in the largest ever yen-denominated deal by a non-Japanese company. The use of yen-denominated debt reflects the relative attractiveness of Japanese funding costs and the depth of demand from Japanese institutional investors for high-quality foreign issuers.
Indian markets closed the week under significant pressure, with the picture meaningfully worse than the prior week's modest gains. The Nifty 50 fell approximately 2.2% to close around 23,644, failing to hold the 23,800 support level. The BSE Sensex closed around 75,399. The rupee hit 95.97 against the dollar, touching an intra-session low of 96.14, a record low, before a mild recovery.
The drivers are connected and consistent. WTI crude back at $105 means the import bill deteriorates sharply. A wider current account deficit puts pressure on the rupee. Dollar demand from importers accelerates the rupee move. A weaker rupee makes imports more expensive, feeding into the domestic CPI. Oil marketing companies have already passed through Rs 3 per litre on petrol and diesel. The RBI now faces the uncomfortable choice between defending the rupee through forex intervention, which tightens domestic liquidity, and allowing the currency to find its own level.
Watch 23,450 on the Nifty. That is the next meaningful technical floor. A break below it would bring the 200-day moving average into view and signal that the correction is deeper than a retracement. The rupee at Rs 96 is the line in the sand for RBI intervention. Any sustained move above Rs 96 will likely trigger direct currency market action from the central bank.
Defensive anchors: IT names including Infosys and Tech Mahindra, and pharma including Dr. Reddy's, held relatively well as investors sought sectors with dollar revenue and lower oil sensitivity.
Hard hit: Metals (Hindalco, Tata Steel) and financials faced heavy institutional selling. The combination of rising global yields, a weaker rupee, and higher energy costs creates a difficult environment for capital-intensive sectors with significant debt.
Standout gainer: Tata Motors Passenger Vehicles outperformed and was among the top gainers late in the week, suggesting domestic auto demand remains intact despite the macro headwinds.
Adani: The group settled its civil fraud lawsuit with the US SEC over overseas bribery allegations. The settlement removes a significant legal overhang and should provide clarity for investors in Adani group companies.
Kevin Warsh was nominated to replace Jerome Powell as Federal Reserve Chair. His first major test arrives immediately: a bond market in the early stages of an inflation-driven selloff, three existing dissenters within the FOMC, and an energy shock with no near-term resolution. Warsh is known as a market hawk who prioritises credibility over growth accommodation. Markets will parse his first public statements carefully for any signal on whether the hiking discussion is being formally reopened.
Wednesday 20 May: Nvidia Q1 Earnings. This is the single most important corporate event of the week for global markets. Nvidia's guidance will determine whether the AI infrastructure investment thesis is intact or whether there are early signs of demand softening at the hyperscaler level. Given Friday's chipmaker selloff, the positioning into the print is lighter than it was a month ago. A strong result and guidance could anchor the Nasdaq. A miss on either would accelerate the correction.
Tuesday 19 May: US Retail Sales (April). Consumer spending data after a week of rising fuel costs and a sharp bond market move. If retail sales hold up despite higher petrol prices, it confirms the consumer remains the shock absorber for the US economy. If they disappoint, the narrative shifts quickly toward demand destruction and recession concerns.
Tuesday 19 May: Walmart and Home Depot earnings. Two of the best real-time reads on US consumer behaviour. Walmart's commentary on basket sizes, trade-down behaviour, and private-label penetration will tell you more about the actual consumer than any survey data.
Wednesday 20 May: FOMC April Meeting Minutes. The minutes will be examined specifically for any language around the three dissenters and whether a rate hike is being formally discussed, rather than merely implied. Any mention of conditions under which a hike might be considered will move bond markets immediately.
Thursday 21 May: Philadelphia Fed Manufacturing Index and Jobless Claims. After the Empire State Manufacturing Index hit a four-year high, the Philly Fed will confirm or deny whether the manufacturing sector is running hot across regions. Initial claims data will be watched for any early signs that higher oil costs are beginning to translate into labour market softening.
Monday 18 May: India IIP and Trade Balance. Industrial production data will indicate whether the manufacturing momentum seen in PMI data is translating into actual output. The trade balance will quantify the oil import cost impact and give a cleaner read on how quickly the current account is deteriorating at $105 crude.
Thursday 21 May: RBI Monetary Policy Meeting Minutes. Any fresh signals on the rate path or liquidity stance given the rupee pressure and the global yield move. The RBI's language on currency intervention thresholds will be read carefully.
India earnings: BPCL, BEL, Indian Oil, Indraprastha Gas. The energy complex reporting in full. BPCL and Indian Oil commentary on marketing margins after the Rs 3 per litre fuel hike will indicate whether the pass-through is sufficient to restore refiner profitability. BEL results will update the defence sector order book.
The Hormuz thread. With Trump explicitly ruling out using China as leverage on Iran this week, the diplomatic path to a Hormuz reopening looks longer than markets hoped. Every week without progress is another week of $100-plus crude. Watch for any direct US-Iran back-channel communication that might revive the MOU process.
Seven consecutive weekly gains on the S&P 500 is a remarkable achievement under any conditions. Under these conditions, with WTI at $105, UK gilt yields at a 28-year high, and the Fed's own dissenters raising the prospect of rate hikes, it is extraordinary. The earnings environment has been genuinely strong. The AI infrastructure investment cycle is real. These are not manufactured reasons for the rally.
But Friday's session is the market acknowledging that you cannot indefinitely price out risks that have not resolved. The Iran conflict has not resolved. The energy shock has not resolved. The inflation it is causing has not resolved. The bond market understood this before equities did this week. That is typically how turning points begin.
For Indian investors, the week ahead is binary on two variables. First, Nvidia's earnings will set global technology sentiment and determine whether FII flows into Indian IT and tech-adjacent names continue or reverse. Second, the Hormuz situation will determine whether WTI holds at $105 or moves higher. At $105 crude, the rupee pressure, the fuel price pass-through, and the current account deterioration are manageable. At $115, the conversation changes materially.
The bond market rarely gives false alarms of this magnitude. Pay attention to what it said this week.
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