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The S&P 500 closed Friday at 6,632.19, its lowest level of the year, down 0.61% on the day and 1.6% on the week. It was the index’s third consecutive weekly loss, its first such streak in roughly a year per CNBC. Adobe finished as the session’s most high-profile casualty, shedding 8.85% after its CEO of 18 years announced his departure alongside an earnings report that beat on revenue and missed on the metric that actually mattered. And a defense secretary’s afternoon statement killed whatever recovery the bulls had been trying to build.
The Index Is Hiding Something
Here is the number that reframes the week. The S&P 500 cap-weighted index is down roughly 3% year to date after Friday’s close. The S&P 500 Equal Weight index, which gives the same importance to its 500th constituent as its first, was tracking a gain of around 3% YTD as recently as the first week of March, per Advisor Perspectives data. The gap between those two numbers tells you almost everything about what kind of market this actually is.
The cap-weighted index is being dragged down by the names that dominate it. On Friday alone, Salesforce fell 3.25%, Apple dropped 2.15%, and Microsoft slid 1.57% per Trading Economics. Information technology and communication services were the two worst sectors on the day, each down around 1.1% per CNBC. These are not small weights in the index. What the headline number is really measuring is the continuing repricing of growth stocks against a backdrop of elevated yields and an oil shock that the market still hasn’t fully digested. Beneath that repricing, a very different rotation is underway.
The Sectors That Don’t Need Hormuz to Reopen
Utilities led the market on Friday, gaining about 1.4% on the session. For the week, utilities rose nearly 1%, and energy was up 2.5%, the only two sectors in the green on a weekly basis per CNBC. Put that in context: the S&P energy sector just posted its best weekly gain at a time when the headline index hit its year-to-date low. That’s not a contradiction. It’s a rotation.
The logic is straightforward enough. A $100 oil regime is catastrophic for capital-intensive importers and growth-sensitive earnings multiples. It’s quite good for companies that produce energy or supply electricity to data centres running at full capacity through a conflict. The equal-weight outperformance is the same story told through position sizes. An investor who held the index without the market-cap tilt is ahead on the year. The one who rode the Magnificent Seven concentration into March is not.
Retail investors started arriving at that conclusion on Thursday. Vanda Research data showed retail buying of oil ETFs hit a record $211 million on Thursday, topping the previous record set in May 2020. The United States Oil Fund saw its third-biggest day of retail buying on record. Whether that’s well-timed positioning or late-cycle FOMO after Brent’s first close above $100 since August 2022 is a question that will get answered over the coming weeks.
Adobe’s Problem, in Two Numbers
Adobe reported first-quarter revenue of $6.4 billion on Thursday evening, up 12% year over year, beating analyst estimates of $6.28 billion per Bloomberg. Adjusted EPS came in at $6.06, topping the $5.87 consensus. CEO Shantanu Narayen, on the earnings call, said Adobe had delivered “record Q1 results with AI-first ARR more than tripling year over year.” By Friday morning, the stock was down more than 8%.
Two things killed it. The first was net new Digital Media Annualized Recurring Revenue of $400 million, short of the $450-$460 million analysts had expected per Financial Content. Adobe’s legacy Stock business was the main culprit. The second was guidance: Q2 non-GAAP EPS was projected at $5.80 to $5.85, a step down from the $6.06 just delivered, handing bears a fresh reason to sell.
Then came the headline that overshadowed both. Narayen, who has run Adobe since 2007 and is credited with engineering its transition from packaged software to a cloud subscription business worth north of $250 billion at its peak, is stepping down. He’ll stay on as board chair and remain in the CEO role until a successor is named per Bloomberg. The stock closed at $249.48, down 8.85%, sitting 28.6% below its yearly high of $422.95. Morgan Stanley analyst Keith Weiss cut his price target from $425 to $365 and maintained an Equal Weight rating, warning in a note that the departure of an iconic leader during “peak uncertainty around the future of software” was bound to increase investor anxiety around the shares. Wells Fargo lowered its target from $405 to $330 but kept Overweight. Barclays downgraded to Equal Weight from Overweight with a $275 target, down from $335, per Stocktwits. The framing was consistent across the Street: a CEO transition at a moment of genuine strategic risk is a harder sell than a CEO transition in calmer times. The deeper concern, the one that existed before Narayen said anything, is whether Adobe’s pricing power can survive a generative AI environment that is eroding the barrier to entry it spent a decade building.
The Afternoon That Ended the Rally
Friday opened with a tentative recovery attempt. S&P futures were up 0.45% before the bell. The initial data, PCE at 2.8% headline and 3.1% core per the BEA, landed roughly in line with expectations. For about two hours, the market held its footing.
Then Defense Secretary Pete Hegseth announced what Trading Economics described as “the largest wave of US strikes against Iranian targets” since the conflict began. That statement, delivered in the afternoon, cemented fears that the Strait of Hormuz blockade would run into at least a fourth week. Oil, which had been consolidating, held its gains. The brief recovery in equities evaporated. The S&P finished in the red for the fourth consecutive session.
David Aspell, chief investment officer for global macro at Mount Lucas Management, framed the dynamic well. “Earnings are pretty good, but sentiment is difficult,” he told CNBC. “The oil part of the sentiment and equity valuation embeds an interest rate path which is now being questioned.” That last point matters. The Friday afternoon CME FedWatch data shows the market no longer pricing any cut in September, a further shift from the July timing that was consensus as recently as a month ago.
What Consumers Are Starting to Price In
The University of Michigan’s preliminary March consumer sentiment index came in at 55.5 on Friday, down 1.9% from February per CNBC, close to the Dow Jones consensus but still near multi-year lows. The detail buried in the survey is the one that should worry equity bulls most. Survey director Joanne Hsu noted that interviews completed before the Iran military action had shown an improvement in sentiment, but “lower readings seen during the nine days thereafter completely erased those initial gains.” The conflict has a clean before-and-after signature in consumer psychology.
The inflation expectations embedded in that survey are also moving. The one-year outlook held at 3.4%. The five-year reading nudged lower to 3.2%, but that is still well above the Fed’s 2% target and above levels consistent with a return to easy monetary policy anytime soon. Capital Economics, citing the 1973 OPEC oil shock as the nearest historical analogue, has noted that the S&P fell more than 40% over the course of that stagflation episode. The comparison is not an exact fit, but the directional logic is hard to dismiss entirely when core PCE is at 3.1% and the economy decelerated to 0.7% annualised growth in Q4.
The Fed Meeting Looms
The FOMC convenes on Tuesday and Wednesday next week with a decision on Thursday. No change to the 3.50-3.75% target rate is expected. What the market is watching is the updated dot plot and whether any committee members have shifted their language toward the possibility of rate increases later in the year. TradeStation’s David Russell put the stakes plainly after the GDP revision: “An already large headache for the Federal Reserve is going to turn into an even larger one.” The question for equity investors is whether Powell’s press conference changes the tone enough to move the dial on those September cut expectations, or whether the frozen-Fed narrative gets another quarter to compound. Utilities and energy will be fine either way. The index, as a whole, is less certain.
The gap between the cap-weighted and equal-weight S&P is the most useful single data point in describing where this market actually stands. The Hormuz disruption has already reshuffled the equity trade well beyond energy stocks, and the sectors benefiting from higher oil are proving that out week after week. Whether the tech-weighted headline index catches up to them, or they eventually come back down to it, is the question that the FOMC meeting and the next round of oil headlines will start to answer.
