Three Forces Fueling Wall Street’s Comeback Week

The stock market staged a notable comeback last week, navigating a complex landscape of economic news. The Nasdaq managed to break its five-week losing streak, driven by strong performances from major technology players like Meta Platforms, Nvidia, and Amazon. The tech-heavy index closed the week up 1.9%. Meanwhile, the S&P 500 saw a 1.1% increase, ending its two-week downturn during the shortened trading period.

A significant development was the Supreme Court’s ruling against President Donald Trump’s emergency tariffs. This decision provided a lift to many consumer-facing companies that had been contending with higher import costs. The S&P 500’s gains might have been more substantial if not for concerns surrounding the private credit market, specifically stemming from Blue Owl Capital, which introduced volatility to some financial sector stocks. Despite these jitters, financial institutions generally held their ground, with bank stocks finishing the week in positive territory, led by Wells Fargo’s 2% gain, followed by Goldman Sachs at 1.9%, and Capital One at 0.5%. The question remains whether this upward momentum will carry into the current week.

### Supreme Court Tariff Ruling: A Mixed Bag for Retail

The S&P 500 saw a 0.7% uptick on Friday following the Supreme Court’s decision to strike down a significant portion of President Trump’s tariff agenda. The Court’s majority opinion stated that the statute in question had never been used for tariffs of such magnitude and scope, and that the President would need clear congressional authorization for such “extraordinary” powers.

Despite the ruling, the immediate market reaction for some tariff-sensitive companies was tempered. Nike, for instance, which had previously warned of a $1.5 billion tariff headwind for the fiscal year, saw its stock initially rise on the news but ultimately close down 0.3%. This suggests that investors are anticipating alternative strategies from the administration to implement higher levies. Other consumer giants such as Costco, Procter & Gamble, TJX Companies, and Amazon are also navigating the implications of this ruling, which impacts pricing, margin, and inventory management strategies.

### Big Tech’s AI-Fueled Resurgence

The performance of megacap technology stocks was a key driver of the market’s recovery. Meta’s announcement of its intention to utilize millions of Nvidia’s chips in its data centers fueled gains for both companies, underscoring the persistent demand for artificial intelligence and the subsequent surge in hyperscaler spending. Both Meta and Nvidia closed the week higher, with Meta up 2.5% and Nvidia gaining 3.8%.

Amazon also experienced a significant jump, climbing 5.6% for the week, partly influenced by a regulatory filing revealing that Bill Ackman’s Pershing Square had substantially increased its stake in the e-commerce giant during the fourth quarter. Alphabet, after an initial dip following its earnings report, saw a rally and ended the week up 3%. This pullback was viewed by some as an opportunity, leading to increased investment in the AI leader.

Adding to the tech sector’s strength was Corning, whose fiber optic cables are becoming increasingly critical for data center infrastructure, a key component of the AI ecosystem. Despite not being a megacap tech firm, Corning benefited from the AI narrative, with its stock appreciating by 4.5% over the week.

### Private Credit Woes and Financial Sector Stability

Concerns within the private credit market, particularly surrounding Blue Owl Capital, sent ripples through the financial sector. Blue Owl’s shares fell nearly 6% after it imposed permanent restrictions on withdrawals from its private debt fund for retail investors. This event has led some on Wall Street to label Blue Owl as a “canary in the coal mine,” suggesting potential underlying issues in the rapidly expanding private credit market, which has attracted substantial capital in recent years.

Major private asset managers, including Ares Management, Apollo Global, Blackstone, and KKR, experienced significant declines. Ares and Blackstone were among the worst performers in the S&P 500 financials sector, ending the week down 8% and 6.6%, respectively. Apollo, while experiencing a dip, managed to recover some ground, ending the week up 1.2% after an initial 5.6% fall.

For some financial institutions with exposure to private credit, the impact was less severe. BlackRock, for example, saw its shares dip only 1% before rebounding to finish the week up 2%. While acknowledging the presence of some non-performing loans within the private credit complex, some analysts maintain that the situation is not currently indicative of a systemic crisis.

In terms of portfolio activity, Capital One, a credit card issuer, was a focus, with additional shares being acquired. This move coincided with the sale of Danaher and Texas Roadhouse. The exit from the restaurant stock was prompted by an earnings report that suggested persistent beef inflation challenges, impacting the company’s outlook.