Key Highlights
Market Movers & Shakers
  • A synchronized selloff hit global government bond markets last week, with the U.S. 30-Year Treasury yield pushing above 5% for the first time since October 2023 and Wednesday’s auction clearing with a coupon north of 5% for the first time since 2007.
  • April CPI accelerated to 3.8% year-over-year while PPI surprised sharply higher at 6.0%, the hottest reading in nearly four years, putting incoming Fed Chair Kevin Warsh in an increasingly difficult policy position before he is even sworn in.
Updates & News
  • Tandem holding NextEra Energy (NEE) announced an all-stock combination with Dominion Energy (D), creating the world’s largest regulated electric utility by market capitalization with approximately 10 million customers across Florida, Virginia, North Carolina, and South Carolina.
  • The deal is expected to be immediately accretive to adjusted EPS at close, with management targeting 9% adjusted EPS growth through 2032 and 6% annual dividend growth through 2028.

Market Movers & Shakers

Major U.S. equity indices put in a mixed performance last week, with the headline indices masking weakness beneath the surface. The S&P 500 eked out a 0.13% gain, while the Nasdaq Composite declined slightly, finishing lower by 0.08% for the week. Meanwhile, the equal-weight S&P 500 closed lower by 1.20%, trailing its cap-weighted counterpart by roughly 130 basis points, while the small-cap Russell 2000 lagged sharply with a 2.37% decline. Monday and Wednesday’s trading sessions saw the S&P 500 close higher despite negative NYSE breadth, a sign that a handful of stocks were buoying the market. In fact, on Wednesday roughly 9% of individual S&P 500 components hit fresh 52-week lows, and the majority of NYSE volume was concentrated in declining stocks even as the cap-weighted indices traded at or near all-time highs. Both the equal-weight S&P 500 and the Dow Jones Industrial Average remain pinned below their pre-war record highs established in February. According to BTIG Chief Market Technician Jonathan Krinsky, market breadth deteriorated to an unprecedented degree last week. The S&P 500 stretched to 8.5% above its 50-day moving average, even as fewer than half of its constituent members (47%) traded above their own 50-day. Krinsky noted that this gap represents the widest divergence between index-level performance and underlying participation on record. From a sector standpoint, Energy (+6.75%) was the standout performer coinciding with another sharp move higher in oil prices, while Consumer Discretionary (-3.07%) bore the brunt of selling as wallets remain pinched by higher prices at the pump.



Source: LSEG

Last week brought a synchronized selloff across global government bond markets, with yields surging from Tokyo to London. The Japanese bond market drew the most attention, with the 10-Year Japanese Government Bond yield rising 23 basis points to a level not seen since 1996. Prime Minister Sanae Takaichi announced that the government would issue fresh debt to fund a supplementary budget aimed at cushioning the economic impact of the Iran war. In the U.K., the 10-Year Gilt yield jumped 26 basis points to 5.17%, the largest weekly move among major sovereigns, amid mounting political uncertainty in Britain. Prime Minister Keir Starmer is facing a leadership challenge from the Mayor of Greater Manchester, Andy Burnham. Investors began pricing in the prospect of materially higher government spending should Starmer be ousted. On the continent, the 10-Year German Bund yield rose 16 basis points, with the move largely reflecting spillover from the broader synchronized selloff as energy-driven inflation pressures across the eurozone forced markets to reprice the European Central Bank’s policy path in a more hawkish direction. Stateside, the 10-Year U.S. Treasury yield climbed 24 basis points, while the 30-Year U.S. Treasury Bond yield pushed well above 5%, its highest level since October 2023. Wednesday’s auction of 30-Year bonds saw a coupon above 5% for the first time since 2007. Sparking the broader move higher in yields was a hotter-than-expected pair of inflation prints. April headline CPI accelerated to 3.8% year-over-year, up from 3.3% in March and the hottest reading since mid-2023. April PPI also surprised sharply to the upside, printing at 6.0% year-over-year for its hottest reading in nearly four years. Producer prices are generally viewed as a leading indicator for consumer prices, as cost increases at the wholesale level tend to filter through to retail shelves with a modest lag. This dynamic raises the prospect that higher inflation could persist into the summer months, and has market participants and central bankers alike questioning whether inflation expectations may become unanchored.



Source: U.S. Bureau of Labor Statistics 

Against this backdrop, Kevin Warsh is set to be sworn in as the next Chairman of the Federal Reserve this Friday, inheriting an increasingly challenging policy setup. In just a matter of weeks, the market outlook on the future path of monetary policy has done a complete 180. At the start of the month, Fed funds futures were pricing in roughly two interest rate cuts through the end of the year. Those expectations have since evaporated. According to the CME FedWatch tool, the market is now pricing in a roughly 40% probability of a rate hike before year-end. The 2-Year U.S. Treasury yield, which historically has provided a clean read on near-term Fed expectations, touched 4.10% last week, its highest level in 14 months. Adding to the pressure, the Fed’s preferred inflation gauge, Core PCE, is moving further away from the central bank’s 2% target, expected to print at 3.3% later this month. Historically, markets have a habit of testing new Fed chairs early in their tenure. Volcker walked into double-digit inflation; Greenspan was greeted by the 1987 crash within months of taking office; Bernanke inherited the Global Financial Crisis; and Powell weathered a near-bear market in late 2018 after pushing back on political pressure for easier policy. Warsh’s test appears to be how he balances inflation credibility against an executive branch that has been vocal in its desire for lower rates. The first FOMC meeting under his leadership in June will be one of the most closely watched in years.



Source: Dow Jones Market Data; FederalReserve.gov

Geopolitics dominated the headlines last week, centered around the highly anticipated Trump-Xi summit in Beijing. Despite the notable optics, the substance ultimately underwhelmed market participants. There was no major breakthrough on trade, with the meeting at best setting the table for further negotiations. The most pointed moment came when President Xi reportedly warned President Trump regarding Taiwan, a deliberate reminder that Beijing views the island as a redline issue, particularly as U.S. arms deliveries and rhetorical support for Taipei have ramped up in recent months. Regarding Iran, it appears the two leaders found common ground. China agreed the Strait of Hormuz should be reopened and that Tehran should not possess nuclear weapons, but Beijing appears unwilling to put any meaningful pressure on Iran to make either outcome a reality. Further compounding the regional anxieties, a drone strike caused a fire at a nuclear power plant in the United Arab Emirates over the weekend, while Saudi Arabia reported shooting down three drones launched from Iraqi airspace.

Looking ahead, Nvidia’s Q1 earnings report on Wednesday after the close is unquestionably the marquee event of the week. The report will either ease or reinforce concerns about an AI bubble as the company approaches $6 trillion in market capitalization. On the consumer side, a wave of retail earnings, including Walmart, Home Depot, Lowe’s, Target, TJX, and Ross Stores, will provide a read on whether the recent string of hot inflation prints and rising gasoline prices is beginning to bite into discretionary spending.

Updates & News*

In portfolio news, Tandem holding NextEra Energy (NEE) announced an agreement to combine with Dominion Energy (D) in an all-stock transaction. Under the terms of the agreement, Dominion Energy shareholders will receive a fixed exchange ratio of 0.8138 shares of NextEra Energy for each share of Dominion Energy they own at close, plus a one-time cash payment of $360 million spread across all outstanding Dominion shares. The combined entity will operate under the NextEra Energy name, trade on the NYSE under the ticker symbol NEE, and maintain dual headquarters in Juno Beach, Florida and Richmond, Virginia. NextEra’s John Ketchum will serve as chairman and CEO, while Dominion’s Robert Blue will serve as president and CEO of regulated utilities. Strategically, the deal creates the world’s largest regulated electric utility business by market capitalization, serving approximately 10 million customers across Florida, Virginia, North Carolina, and South Carolina, and owning 110 gigawatts of generation across a diversified mix of energy sources. The combined company will operate as more than 80% regulated, anchored by a $138 billion rate base expected to grow at approximately 11% annually through 2032. The combined company is particularly well-positioned to capitalize on the surge in electricity demand from data centers across the Southeast. Management expects the transaction to be immediately accretive to adjusted earnings per share at close, with adjusted EPS growth of 9% through 2032 and an annual dividend growth policy of 6% through 2028. The deal has been unanimously approved by both boards and is expected to close in 12 to 18 months, subject to shareholder approvals and the customary regulatory review process.

On the transition front, new manager-traded accounts and accounts with recent deposits that have been under Tandem’s management for two weeks are approximately 50% of the way invested in our strategies. By the one-month mark, new money is just under two-thirds of the way in line with our strategies, and by the three-month mark, new accounts and deposits are roughly 80% of the way transitioned.

Source: Source of all data is FactSet, unless otherwise noted.

*The transition level activity taken by Tandem is applicable to new manager-traded accounts and new money in manager-traded accounts, not the composite or firm-wide level. New manager-traded accounts and new money in manager-traded accounts are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions, this process differs from Tandem’s model-provided strategies, where money is invested on the day the account opens. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

Print
Back to Archives

Disclaimer: Tandem Investment Advisors, Inc. is an SEC registered investment advisor.

This audio/writing is for informational purposes only and shall not constitute or be considered financial, tax or investment advice, or an offer to sell, or a solicitation of an offer to buy any product, service, or security. Tandem Investment Advisors, Inc. does not represent that the securities, products, or services discussed in this writing are suitable for any particular investor. Indices are unmanaged and not available for direct investment. Please consult your financial advisor before making any investment decisions. Past performance is no guarantee of future results. All past portfolio purchases and sales are available upon request.

All performance figures, data points, charts and graphs contained in this report are derived from publicly available sources believed to be reliable. Tandem makes no representation as to the accuracy of these numbers, nor should they be construed as any representation of past or future performance.

This document was originally written/recorded in English. Tandem does not guarantee the accuracy, completeness, or reliability of any translated materials, and shall not be held responsible for any discrepancies, errors, or misinterpretations arising from the translation process.