Weekly Market Report: May 2nd, 2025
Markets continued to look at the glass “half full” last week with constructive corporate earnings, resilient labor markets, and optimism surrounding the U.S.-China trade war making up a more forward looking bullish case. Those looking at the glass half empty last week pointed to a weak Q1 GDP report, a stretched consumer, pipeline inflation, and weak manufacturing indications. Equity markets put together a strong finish to a volatile month of April with nine consecutive positive trading days. For the week, the S&P, EAFE, and Emerging markets closed up 2.9%, 2.4%, and 3.6% respectively while interest rates and the USD edged slightly higher. Commodity markets fell over 3% with oil leading the way, WTI closing at $58.29, down 7.5% for the week.
Market Anecdotes
- Equity markets continued to rebound from the April tariff tantrum, stringing together nine consecutive positive days bolstered by earnings, labor market strength, and cautious optimism that global trade conflicts are beginning to move toward compromise.
- U.S. – China trade remained under a spotlight last week, moving from a stonewall response from China to reciprocal gestures as each exempted similar amounts of imports.
- One of the initial reverberations from the trade wars include U.S. Q1 GDP contracting 0.3% – vulnerable but not collapsing. The print was largely due to net exports detracting 4.83% but uncertainty also saw personal consumption fall to 1.8% from 4.0%.
- Another trade war ripple effect was evident in April new export orders which plunged to 43.1, a level associated with recessions and Trump 1.0 trade war.
- Bond market characteristics remain a key focus with modest credit spreads, a relatively friendly corporate bond maturity profile, and technical forces in treasuries all under close watch.
- Q1 earnings reports last week, which included most major technology companies, were encouraging with a blended bottom line at 12.8% and top line at 4.8%.
- Encouraging labor market indications came across last week including monthly payrolls, JOLTS, and ECI reports showing continued resiliency, a pillar of strength for investors and policy makers.
Bullish Asset Allocation Narratives
- Administration officials, bond markets, and public opinion have and will continue to push for expedient resolutions to trade disputes. Peak tariff panic is in the rearview mirror.
- A brief growth slowdown remains much more likely than sustained stagflation given the man-made nature of the trade crisis and ability to course correct/save face abruptly.
- Potential for swift course correction on tariff policies, possible fiscal stimulus (tax cuts), and likely business friendly deregulation encourages focus on the intermediate term horizon.
Bearish Asset Allocation Narratives
- Heightened and persistent uncertainty is translating to concerning indications in hiring intentions and negative sentiment risking declines in employment, capex, and consumption.
- Pressure on risk assets may persist until trade, monetary, and fiscal policy become more clear.
- Technical factors in U.S. bond markets (upward pressure on rates) present unique challenges for investors and overall cost of capital implications across the economy.
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