Good morning investors,
It's May 4th, meaning its my Mothers birthday. Want to give her a quick shoutout before we dive in.
Markets enter the week riding momentum from a solid start to May. Both the S&P 500 and Nasdaq closed at fresh record highs on Friday, capping a week where five of the seven Magnificent Seven delivered earnings that reinforced the AI investment thesis.
The S&P 500 gained just under 1% for the week. The Nasdaq added 1.1%. The Dow climbed 0.5%. All three major indexes are now firmly positive on the year after the historic April recovery.
This morning, futures are mixed. S&P 500 futures are up 0.1%. Dow futures have added 85 points. Nasdaq 100 futures are flat.
Oil is edging higher, with WTI advancing 0.9% to $102.83 per barrel after President Trump announced "Project Freedom," a plan for U.S. forces to guide commercial vessels through the Strait of Hormuz. Iran's foreign ministry responded that it was ready to "respond to U.S. threats" in the waterway.
The 10-year Treasury yield is up 1 basis point to 4.398%. The 30-year yield is approaching 4.98%, creeping closer to that 5% danger zone I have been watching.
The Week Ahead
This is another packed week for investors.
Friday's April jobs report headlines the economic calendar. Economists are expecting a muted 60,000 jobs added after March's 178,000. The pattern of alternating strength and weakness over the past ten months has been difficult to interpret, but weekly data points in the right direction. Initial jobless claims touched their lowest level since 1969 last Thursday.
Before Friday, we get JOLTS job openings on Tuesday, ADP private employment on Wednesday, and Challenger job cuts on Thursday.
On the earnings calendar, semiconductors take center stage. Lattice Semiconductor reports today. AMD reports Tuesday. Arm Holdings reports Wednesday. If the hyperscalers provided the buyer's perspective last week, semiconductor companies are the bellwether for the supply side of the AI buildout.
Palantir also reports today, along with Novo Nordisk, Paramount Skydance, Tyson Foods, and Pinterest.
Sell in May? The Data Says Otherwise
You will hear the "sell in May and go away" adage this week. The historical data tells a different story.
Ryan Detrick, CMT release a note over the weekend showing the S&P 500 has been positive in May for 12 of the last 13 years. It has been positive in June for 9 of the last 10 years. It has been positive in July for 11 consecutive years.
That does not mean May will be smooth. After the magnitude of the April move, some consolidation would be healthy. But the seasonal weakness that old Wall Street wisdom warns about has not been a productive strategy for positioning in recent years.
The Profit Margin Story
FactSet data shows S&P 500 companies are on track to post a net profit margin of 13.4% for the first quarter. That would be the highest mark on record.
Consensus expectations see that number rising further next quarter.
The equation is simple. Record earnings beget record stock prices. The former justifies the latter. This calculus is the best argument against chatter of an AI bubble.
The companies spending hundreds of billions on AI infrastructure are not doing so blindly. They are generating returns. Cloud growth is accelerating. The hyperscalers are beating estimates. The capital is being deployed and it is being monetized.
Why Drawdowns Are the Price of Admission
Over the weekend, I published a piece on Substack examining the 13-day recovery from the March lows and what it teaches us about market behavior during periods of stress.
The core message: drawdowns are the price of admission for long-term returns. The investors who stayed invested through March and April captured one of the fastest recoveries in market history. Those who moved to the sidelines waiting for clarity missed it.
You can read the full analysis here: https://open.substack.com/pub/dansheehan9/p/the-13-day-recovery-why-drawdowns
Semiconductor Week
The PHLX Semiconductor Index surged more than 40% in April, its best month since February 2000. The sector logged a record 18-day winning streak. AMD is up 70% over the past month heading into earnings. Arm is up 40%. Lattice is up 25%.
That performance has put the sector at risk for potential consolidation. But as one strategist noted, if key semiconductor names continue to deliver positive surprises, it becomes difficult to bet against the trade.
The hyperscaler earnings last week showed combined AI infrastructure spending now exceeds $700 billion for 2026. That capital flows directly to semiconductor manufacturers. The demand signal is clear.
Great Chart
I wanted to share one of my favorite charts i saw last week from Matt Cerminaro / Michael Batnick, CFA. There is an increasing divergence between tech sector pricing and valuations.
Berkshire Hathaway: Strong Operations, Growing Cash Question
Berkshire Hathaway delivered a solid operational quarter over the weekend. Operating earnings rose 18% year over year. Insurance underwriting jumped 28.5% to roughly $1.7 billion. The core business is executing well.
But the focus is not on earnings. It is on cash.
Berkshire is now sitting on nearly $400 billion in cash, a record level. That build has been driven by continued net selling of equities. The company sold approximately $24.1 billion in equities and purchased only $8 billion. Buybacks totaled just $235 million.
That positioning is deliberate, but it comes with a trade-off.
Holding that level of cash in a rising market has contributed to significant underperformance. Berkshire has lagged the S&P 500 meaningfully since Warren Buffett signaled his transition. The underperformance now exceeds 40% since he stepped down.
This is the central question: Is the cash a strategic advantage or an opportunity cost?
Berkshire had two major opportunities to deploy capital aggressively in the past fourteen months: April 2025 and March 2026. Both selloffs recovered quickly. Both times, Berkshire did not meaningfully put the cash to work.
Greg Abel now inherits that position. His early actions are notable. He personally invested his entire after-tax salary into Berkshire shares, signaling alignment and confidence. But at the corporate level, buybacks remain minimal relative to the size of the balance sheet.
Berkshire is executing well operationally. The market is focused on what it is not doing. The growing cash position is becoming the defining variable, and how it is deployed in the post-Buffett era will determine whether the company can close the performance gap.
Is Berkshire the only company that gets celebrated for trying to time the market?
Corporate Developments
GameStop announced an unsolicited offer to acquire eBay for $125 per share in a cash-and-stock deal, valuing the e-commerce platform at roughly $55.5 billion. The offer represents a 20% premium to eBay's Friday close. Ryan Cohen told the Wall Street Journal he sees a path to make eBay a much bigger competitor to Amazon. eBay shares surged 13% in after-hours trading but remain well below the offer price, suggesting investors are skeptical the deal closes.
Meta is acquiring AI robot company Assured Robot Intelligence as it builds out humanoid robotics capabilities. The cofounders will lead Meta's efforts in robot control and self-learning for humanoid systems.
Cerebras, an Nvidia competitor known for its wafer-scale AI chips, is seeking a valuation of up to $26.6 billion in its IPO. The company aims to raise $3.5 billion by selling shares priced between $115 and $125.
Bitcoin rose above $80,000 for the first time since January. The cryptocurrency is up roughly 20% since the start of the Iran conflict, highlighting how digital assets have largely weathered the disruption. Optimism around potential stablecoin legislation has added to the risk-on mood. If bullish momentum continues, crypto could be a catch-up play given its relative underperformance earlier this year.
Project Freedom and Oil
President Trump announced plans for U.S. forces to guide commercial vessels through the Strait of Hormuz under an initiative dubbed "Project Freedom." The operation could involve land and sea-based aircraft, missile destroyers, and 15,000 troops.
Following the announcement, Iran's foreign ministry said it was ready to respond to U.S. threats in the waterway.
Oil remains elevated but prices have stabilized somewhat after last week's spike above $120. The blockade strategy continues, with Trump betting on the U.S. having more staying power in an attritional economic conflict. Iran is expected to run out of storage capacity within weeks, which would force it to shut down production.
For now, the war remains the most significant tail risk to the market outlook.
Final Thought
The momentum from April has carried into May. Record highs on major indexes. Record profit margins for S&P 500 companies. The AI capital cycle continues to widen rather than narrow.
This week tests whether the semiconductor supply side can match the demand signals from the hyperscalers. AMD, Arm, and Palantir will provide important data points. The jobs report on Friday will show whether the labor market remains intact despite the economic crosscurrents.
I remain constructive while expecting consolidation after the magnitude of recent gains. The trajectory is higher. The path will not be linear.
Stay disciplined. Let the data speak.
Best regards,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
This newsletter is for informational purposes only and should not be considered investment advice. Market Pulse is an independent publication by Dan Sheehan and is not affiliated with, sponsored by, or associated with my employer. Please consult with your financial advisor about your specific situation.