The renewed risk appetite was underpinned by statements from Secretary of State Marco Rubio, who cited "slight progress" in negotiations with Iran. This outlook helped ease energy expectations, with the WTI falling about 8% over the week, despite a geopolitical backdrop that remains fragile. The pullback in US yields also supported equities, allowing indices to extend their longest weekly winning streak since 2023.

There were increases pretty much across the broad, with solid performances in healthcare, industrials, financials and technology. Only consumer staples (-0.1%) and communication services (-0.8%) closed down, with the latter largely weighed on by a decline in Alphabet (-1.4%).

However, this favorable market climate contrasted with a decline in US household morale. The University of Michigan consumer sentiment index fell to a record low of 44.8 points in May, penalized by the cost of living, gasoline prices and fears of more persistent inflation. One-year inflation expectations rose to 4.8%, while long-term expectations increased to 3.9%.

On the monetary front, Kevin Warsh was sworn in as Chairman of the Federal Reserve, with Donald Trump publicly emphasizing the central bank's independence. Bond markets are now pricing in the possibility of rate hikes by the year-end, maintaining a tension between improving equity sentiment and persistent inflationary risks.

Amongst corporate movers, Ross Stores (+8%) surged following better-than-expected results, supported by solid foot traffic and potentially by household tax refunds. Estée Lauder (+12%) also jumped after announcing that it was no longer considering a merger with Puig. Workday (+5%) and Zoom (+9%) also advanced following better-than-expected releases.

The tech hardware segment also supported the session following results from Lenovo (+20%), whose publication improved sentiment across several IT infrastructure exposed names. Dell Technologies (+17%) surged ahead of its earnings call next week, driven by analyst  target price hikes, while Qualcomm (+11%) benefited from the expansion of its partnership with Stellantis (+0.4%). Rigetti Computing (+18%) advanced following a letter of intent related to $100m in US public funding for quantum computing, while Navitas Semiconductor (+19%) continued its rally following the announcement of an investor conference.

Next week will be dominated by geopolitics and inflation, with developments surrounding the war in the Middle East and the normalization of energy exports as primary market drivers. Investors will also monitor the US personal income and outlays report, which includes the PCE index - the Fed's preferred inflation gauge - as rising prices continue to weigh on purchasing power. Alongside this, inflation data will be watched in Europe and Australia, while Japan is set to release several economic activity indicators.