Weekly Market Report: May 9th, 2025
Last week, markets digested another large dose of trade/tariff headlines, several central bank policy meetings, a relatively light economic calendar, and the last legs of 1Q earnings reports. Global financial markets were relatively calm with welcome indications of tariff de-escalation the driving force. Equity markets closed the week largely unchanged while interest rates, commodities, and the USD all moved higher.
Market Anecdotes
- The equity market bounce of the prior two weeks consolidated slightly last week with the S&P 500 closing down slightly but U.S. equity markets exhibiting some improving breadth. The S&P is now trading back up to 21x, relatively fully priced given the uncertain path forward.
- The FOMC left rates unchanged in the May meeting given resilient employment and inflation concerns. With hard data not yet capitulating, the Fed is in a wait and see mode, but tight policy and tariff driven growth drag may prove problematic after the tariff shock fades.
- Markets have pushed Fed Funds rate cut expectations back to July, now pricing in three 25bps cuts for the remainder of 2025.
- The PBOC took action last week including a 10bps cut to its policy rate and 50bps cut to reserve requirements. The BoE lowered rates by 25bps to 4.25%.
- Markets eagerly anticipating a stand down in the U.S. vs ROW trade/tariff tax negotiations received the first deal narrative, announcing the conceptual framework of a U.S.-U.K. agreement.
- Another tariff indication last week was POTUS signaling that 80% (60%) may be a better tax than 145% on certain Chinese goods imports.
- The S&P 500 earnings calendar is now 90%
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.
- The Fed overstaying restrictive policy due to pipeline inflation, high inflation expectations, and strong labor market poses risks to growth in the event tariff de-escalation happens quickly.
- 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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