Weekly Market Recap: Week of May 4, 2026

The week in review

• FOMC kept rates unchanged at 3.75%
• PCE price index rose 3.5% y/y.
• Initial claims declined to 189k

The week ahead

• Unemployment rate
• Nonfarm payrolls

Thought of the Week

Last week, five of the Magnificent 7 companies reported earnings, alongside the first estimate of 1Q26 GDP. Taken together, they showed how central the AI cycle has become to both markets and U.S. economic growth. For 1Q26, mega-cap tech stocks are projected to account for around two-thirds of year-over-year earnings growth, while AI-related capex contributed nearly half of the 2% annualized GDP growth.

Earnings reports also revealed that the hyperscaler spending train is showing no signs of slowing. After nearly tripling over the last two years, 2026 capex estimates have already been revised up more than 30% from four months ago. However, the race to build is running into the reality of constrained input supply. As hyperscalers push to add capacity, the inputs behind that buildout are becoming more expensive.

Companies report capex in nominal terms, so they do not typically disclose how much of the increase reflects higher prices versus real capacity gains. This is where the GDP data offers clues. As the chart of the week shows, nominal and real information-processing investment, which captures spending on servers, chips, computers and related equipment, moved largely together until early 2025. Since then, the gap has widened, suggesting a larger share of spending is being eaten up by higher input costs.

AI investment is still adding capacity and supporting near-term growth, but the bang for each capex buck is starting to fade — and the pressure is likely to build, ultimately raising the bar for monetization. For investors, sustained confidence will likely depend on seeing faster payoffs, not just bigger spending plans.

Chart of the Week: Source: BEA, J.P. Morgan Asset Management.
Thought of the week: Source: BEA, J.P. Morgan Asset Management

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Originally Posted May 4, 2026 – Weekly Market Recap

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