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Dow Reaches Fresh Peak as S&P 500 Logs Eighth Consecutive Weekly Jump

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Dow Reaches Fresh Peak as S&P 500 Logs Eighth Consecutive Weekly Jump

The Dow Jones Industrial Average hit a new record high on Friday, while the S&P 500 logged its eighth consecutive weekly advance.

The Dow rose 0.6% to settle at 50,579.7, logging an all-time closing high for a second day in a row. The S&P 500 ended 0.4% higher at 7,473.5, while the Nasdaq Composite added 0.2% to 26,344. Barring communication services and consumer staples, all sectors were in the green, led by healthcare.

US markets are closed on Monday for the Memorial Day holiday.

This week, the Dow gained 2.1%, the S&P 500 advanced 0.9%, and the Nasdaq climbed 0.5%.

Kevin Warsh formally assumed leadership of the Federal Reserve on Friday, replacing former Chair Jerome Powell amid growing signs of division at the central bank as inflation heats up.

Warsh's nomination by US President Donald Trump had raised concerns about the central bank's independence.

"Markets increasingly believe that the (Federal Open Market Committee) -- and its new chair -- will act to burnish their inflation-fighting credentials and keep their independence intact," Scott Anderson, chief US economist at BMO, said in a report Friday. "This likely means holding policy rates higher for longer to prevent higher energy prices from feeding into longer-term inflation expectations."

Fed officials flagged the possibility of raising interest rates if the Middle East conflict dragged on and kept inflation above the 2% goal, minutes from the central bank's April meeting showed Wednesday.

Fed Governor Christopher Waller said Friday he is prepared to be patient in holding monetary policy at its current restrictive stance as the Middle East conflict continues to evolve.

"If I believe inflation expectations start to become unanchored, I would not hesitate to support an increase in the target range for the federal funds rate," Waller said. "But at this point, that action is premature."

West Texas Intermediate crude oil was up 0.3% at $96.68 a barrel in Friday late-afternoon trade, while Brent rose 1.2% to $103.78. Both benchmarks were on track for weekly declines.

"Markets are still searching for signs of progress in a potential deal between the US and Iran," ING Bank said in a report Friday. "While there are signs of optimism, uncertainty reigns."

A Qatari negotiating team arrived in Iran Friday to help secure a deal to end the conflict, Reuters reported, citing an unnamed source.

US Treasury yields were mixed, with the 10-year rate last down one basis point at 4.56% and the two-year rate rising four basis points to 4.13%.

In company news, Dell Technologies (DELL) shares soared nearly 17%, the top gainer on the S&P 500, as Wells Fargo raised its price target on the stock to $270 from $180.

Take-Two Interactive Software (TTWO) shares fell 4.4%, the second worst performer on the S&P 500. Late Thursday, the video game publisher logged a smaller-than-expected fiscal fourth-quarter loss and said it was on track to launch the highly anticipated "Grand Theft Auto VI" Nov. 19.

In economic news, US consumer sentiment declined to a fresh record low in May as people fear that high gasoline prices could erode their purchasing power, according to a survey by University of Michigan.

"Consumer sentiment fell for the third straight month as supply disruptions in the Strait of Hormuz continue to boost gasoline prices," Surveys of Consumers Director Joanne Hsu said. "The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month."

Gold was last down 0.7% at $4,509.10 per troy ounce, while silver lost 1% $75.96 per ounce.

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IMAX Potential Suitors Include Netflix, Apple, Wedbush Says
US Markets

IMAX Potential Suitors Include Netflix, Apple, Wedbush Says

A potential sale of IMAX (IMAX) could attract a number of likely suitors including private equity firms, Netflix (NFLX) and Apple (AAPL), Wedbush Securities said in a Friday note.The premium theater company is exploring a sale, The Wall Street Journal reported Thursday, citing people familiar with the matter. The sale process, however, is still in the early stages, according to the report.IMAX has held "preliminary talks" through intermediaries, although the company hasn't made any official pitches, CNBC reported Thursday, citing a source.Wedbush said IMAX is an attractive asset, pointing to its strong brand and an expanding earnings profile."At roughly $2 billion in enterprise value, a prospective acquirer would be buying one of the most defensible moats in entertainment for what amounts to a rounding error on the balance sheet of any major studio or technology platform," Wedbush analysts including Alicia Reese wrote.PE ownership would avoid a potential platform conflict as there would be no competing interest, Reese said.The conflict-of-interest problem is "meaningfully smaller" in case Netflix acquires IMAX."Netflix's content calendar remains thin enough that purchasing IMAX would not foreclose rival studio access to the format; the conflict-of-interest problem that would constrain regular studio buyers is meaningfully smaller for Netflix," Reese said. "Owning IMAX would also give every major filmmaker Netflix signs a guaranteed premium theatrical showcase as part of the deal, a powerful recruiting tool in a competitive talent marketplace."On the other hand, Apple TV+ is investing "aggressively" in prestige content and has relationships with filmmakers, who could pitch a guaranteed IMAX showcase during their signing conversations, according to the research note.IMAX's current enterprise value is "a rounding error relative to Apple's balance sheet," Wedbush said.Meanwhile, Sony (SONY) has the best strategic narrative of any studio acquirer."It has no streaming platform, making theatrical its primary monetization window in a way that is structurally different from other major studios," Reese said.IMAX's shares were advancing by 15% ahead of market close on Friday.Price: $39.13, Change: $+5.25, Percent Change: +15.50%

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Prolonged Iran War Could Hit US Automotive Profits, Volumes, Deutsche Bank Says
US Markets

Prolonged Iran War Could Hit US Automotive Profits, Volumes, Deutsche Bank Says

Automotive markets in the US and Europe have so far shown surprising resilience in the current macro backdrop, though a prolonged Middle East conflict threatens to dent production volumes and profits, Deutsche Bank said Friday.The US/Israel war with Iran is leading to inflationary pressures across raw materials, logistics, freight, and energy, the brokerage said in a note to clients."Across (original equipment manufacturer) and auto parts, both Europe and the US have been described as surprisingly resilient in the current environment, while China was rather soft domestically with strength in exports," Deutsche Bank analyst Edison Yu said.Although immediate financial impacts from the war this year seem "largely mitigated thus far by existing hedging and pass-through strategies on oil and raw materials," suppliers are aware that a prolonged conflict can affect volumes and profits, Yu wrote.Suppliers are leveraging current product portfolios and production footprint as they seek "secular non-auto growth opportunities," according to the note.The Iran war started at the end of February, disrupting energy shipments at the Strait of Hormuz and leading to price surges. The narrow waterway is the world's most important chokepoint for crude flows. A fragile ceasefire between the US and Iran appears to be holding, though the two sides are yet to finalize a framework to end the conflict despite a series of talks."Higher oil prices are not yet translating into softer consumer demand, but all companies are preparing for adverse impacts should they start to show later in the year," Yu said Friday.In its latest revision this month, industry data and analytics provider IHS appeared to incorporate a "worse production environment" in the latter part of the year, Deutsche Bank said. The firm cut roughly 500,000 units of production for this year, 1.2 million units for 2027, and 800,000 units in 2028 to factor in elevated oil prices, according to the note."From a sentiment standpoint, this directly contrasts with the resilient environment commented by suppliers and OEMs across the board," Yu wrote. "Admittedly, near-term visibility is roughly 10-12 weeks, and we suspect (the second quarter) will shape up solidly, pushing any potential risks off to (the second half of the year) and 2027."

Update: Rising US Borrowing Costs Won't Slow Massive AI Data-Center Buildout as Potential Profit Outweighs Spending
US Markets

Update: Rising US Borrowing Costs Won't Slow Massive AI Data-Center Buildout as Potential Profit Outweighs Spending

(Updates with comments from Morgan Stanley starting in 13th paragraph.)Rising interest rates won't stop companies such as Alphabet's (GOOG, GOOGL) Google, Amazon (AMZN) and Microsoft (MSFT) from spending enormous amounts of money to build artificial intelligence data centers because the potential profit far outweighs slightly higher borrowing costs, according to industry analysts.The yield on benchmark 10-year US Treasuries rose to 4.58% on Thursday from 3.96% on Feb. 26 as investors worry that rising inflation could prevent the Federal Reserve from cutting interest rates. Earlier this week, the rate reached its highest level since January 2025. That affects borrowing costs for AI hyperscalers that are on track to spend $800 billion in capital expenditures this year and an additional $1 trillion next year.Rates will rise and inflation will remain a concern as the war in Iran will keep oil above $80 a barrel until February, Peter Tchir, head of macro strategies at Academy Securities, said in an interview with. Still, the expected revenue gain from AI products and services is at this point outweighing concerns that rising rates will dampen the data-center buildout, benefiting companies in and adjacent to the AI space including real estate investment trusts, he said."Right now, the profitability of these data centers and AI, and the perceived profitability, just means that they're not really going to be constrained by 50 or 100 basis points in yield," Tchir said. "These are fairly large bets that this is going to work, and it's going to work in a huge scale, in which case borrowing at 5%, 7% or 9% will turn out kind of trivial."It costs $45 billion to $50 billion to build out 1 gigawatt of data-center capacity, said Mandeep Singh, global head of technology research at Bloomberg Intelligence. SpaceX revealed in its initial public offering prospectus this week that it's renting one of its data centers to Anthropic for $1.25 billion a month, or about $15 billion a year."If it costs $50 billion to build an AI data center, and you're able to generate up to $15 billion in revenue in year one, then it takes three and a half years to get your investment back, and then obviously you'll make returns from year four onward," Singh said in an interview.Analysts agreed that benchmark borrowing costs will continue to rise this year."The bond market is a little bit freaked out, we're seeing inflation and risk in the current environment putting a lot of pressure on longer duration Treasury yields to get to very high levels," Elizabeth Templeton, senior product manager for fixed-income indexes at Morningstar, said in an interview. "Seeing the 30-year yield at 5.1% this week, the highest since 2007, is certainly an indication that there's some worry in the markets right now around inflation. That could certainly continue to impact the 10-year the rest of this year."Smaller AI companies including CoreWeave (CRWV) and Nebius (NBIS) could be affected more by the rise in borrowing costs than hyperscalers Amazon, Google and Microsoft, Bloomberg's Singh said. Those companies and others have already sold $300 billion in debt to fund their AI investments this year, according to Bloomberg News. CoreWeave and Nebius didn't respond to a request for comment.Still, the scale of AI borrowing is so large that it can't be ignored, said Kevin McPartland, an analyst at Crisil Coalition Greenwich. Debt deals that are already underway shouldn't be affected, he said."It doesn't take much of a move when you're talking about billions of dollars of financing to really change the economics," he said. "The devil's advocate would be: These are literally the largest companies in the world that have an incredible amount of free cash flow, and so these are not two- or three-year plans, these are five- and 10-year plans, in which case I'm sure they've modeled out the risk of everything, from interest rates to other geopolitical issues," McPartland said."If you're committed for 10 years to spending tens or hundreds of billions, of course you don't want the cost of financing to go up, but maybe the answer is some short-term slowdowns, but no long-term change in strategic planning."Investors should stay exposed to AI but be more selective, Morgan Stanley analysts said Friday in a note to clients.Increased borrowing costs have led to an uptick in rotation across equities, exposing some weakness in AI-aligned companies, the analysts said. Still, AI earnings were "resilient," volatility is contained, and valuations support staying exposed to the sector. the note said."The recent adjustment does not look like a classic risk-off episode or a wholesale defensive rotation," Morgan Stanley said. "It is better characterized as a selective unwind of crowded AI-led momentum exposure, with higher yields providing an additional tailwind to value."The two main data center REITs -- Equinix (EQIX) and Digital Realty Trust (DLR) -- have been refinancing debt and financing their development at roughly the current level of interest rates for the last couple of years, Jeffrey Langbaum, senior REIT analyst for Bloomberg Intelligence, told.That's dented their earnings growth but hasn't deterred them because the returns they generate from the developments outpace the debt costs, he said. Equinix and Digital Realty didn't respond to requests for comment."The returns they are getting on their developments are well in excess of the costs of capital," he said. "My thesis is that even if overall demand shrinks, they should still be able to get their share because they're keeping the size of their development business at a manageable level and not getting out over their skis and trying to expand too far too fast."Equinix sales in the second quarter that ends on June 30 are pegged at $2.58 billion and adjusted funds from operations are estimated at $11.24 a share, according to estimates compiled by FactSet. If realized, that would be up from $2.26 billion and $9.91 a share, respectively, in Q2 2025.Digital Realty Trust revenue in the second quarter is projected by analysts in a FactSet survey at $1.65 billion, while adjusted funds from operations are seen at $1.80 a share. Sales in Q2 last year were reported at $1.49 billion and AFFO was $1.68 per share.Data-center REITs are seeing a tailwind from momentum behind artificial intelligence expansion, Wells Fargo Investment Institute analysts John Sheehan and Amanda Martinez said in a note to clients earlier this month.REITs have a diverse range of offerings including colocation, which allows for multiple users, from hyperscalers to smaller companies, at a single location and interconnection, which means lower-latency connections and better tenant retention, as "particularly notable features" of some data-center buildouts, the analysts said."We are favorable on the data-center REITs subsector as we believe it possesses durable growth prospects, attractive margins, and solid pricing power," Sheehan and Martinez said in their note. "We also view the sub-sector as an attractive route for gaining exposure to the AI theme within the real estate sector, particularly as AI use cases continue to expand and support sustained demand and pricing power."Academy's Tchir said he expects the 10-year Treasury yield to rise to 5% in the next few months, and that investors are rewarding AI capital spending."We're almost in what I call free money stage, where if you announce $10 billion to spend, your stock goes up $20 billion, so why wouldn't you announce spending?" he said. "We are so underinvested in data centers and AI that even if your project turns out not to be as good as you thought, it's still going to do well, because someone needs that compute right now, and for the foreseeable future."Matthew Leising and Tim WeatherheadPrice: $383.20, Change: $-4.46, Percent Change: -1.15%

$AMZN$CRWV$DLR$EQIX$GOOG$GOOGL$MSFT$NBIS