The Setup & Where to Focus

The word of the week was “flat.” The S&P 500 inched lower by 0.5%, hovering near its Liberation Day closing price. Those early-April levels have evolved into key resistance for the US large-cap index. 

• The Nasdaq Composite was also down fractionally, though the tech-heavy space finished Friday not far from the week’s high. 

• It was a mixed bag among the Mag 7 stocks, but what stuck out like a sore thumb was Alphabet (GOOGL). 

  • The search giant was slammed last Wednesday when Apple (AAPL) executive Eddy Cue testified that Google searches in Apple browsers fell for the first time. It’s yet another mini saga in the AI story.

Bigger picture, there wasn’t much volatility. The Cboe Volatility Index (VIX) fell for a fifth consecutive week—there hasn’t been a longer string in more than two years. 

• Ahead of what was a key weekend for US/China trade negotiations, traders were generally sanguine, now five weeks removed from the S&P 500’s apparent bottom at 4835 on April 7. 

• The 1-day VIX, which gauges the implied market swing over the session ahead, jumped toward 27 to close last week, implying a Monday SPX move of 1.7% up or down.

For sector price action, Health Care (XLV) was weighed down once again, dropping 4.2%.

• Unease regarding President Trump’s trade policy on drugs, as well as potential price controls on big pharma’s most prized products, kept the group under the weather.

• Eli Lilly (LLY) plunged 11%, drifting further away from the $1 trillion market cap level, and was joined by steep losses among the likes of Pfizer (PFE), AbbVie (ABBV), and Merck (MRK). 

• UnitedHealth Group (UNH)--now just the third-biggest weight in the Dow Jones Industrial Average—gave back another 5%. 

• Biotech (IBB) closed at its worst weekly level going back to November 2023.

On the plus side, Industrials (XLI) rose 1.1%, which was good enough for the top sector position during May’s first full week. 

• Aerospace & Defense (ITA) soared again, led by fresh all-time highs in GE Aerospace (GE) and Howmet Aerospace (HWM). Boeing (BA) launched 5%, too. 

• There was even sneaky strength in specialty machinery stocks: Eaton (ETN), Parker-Hannifin (PH), and Rockwell Automation (ROK) are some of the best stocks in the market lately. Airlines soared, too. 

• Over the back half of the week, Energy (XLE) caught a bid—the SPDR Oil & Gas Exploration and Production ETF (XOP) rallied 3.4% with WTI crude oil taking back the $60 per barrel mark.

US small- and mid-caps outperformed, but only modestly so. 

• The iShares Russell 2000 ETF (IWM) was up 0.2%, with the SPDR S&P MidCap 400 ETF (MDY) tacking on 0.5% during the data-light and earnings-heavy stretch. 

• Though small biotech equities were pummeled, niche oil stocks and regional banks performed well. 

• Zooming out, US SMIDs chopped some significant wood in light of a modest interest rate rise—these firms are generally more at-risk from rising yields, but that was less of a headwind last week.

Action was absent among international stocks, as well.  The Vanguard FTSE All-World ex-US Index Fund (VEU) was essentially unchanged. 

• Both the Developed Markets (EFA) and Emerging Markets (EEM) ETFs hugged the flat line as the US Dollar Index (DXY) wobbled. 

• South America’s cradle of capitalism, Argentina (ARGT), was best among the 45 country funds we track, tacking on 6.5% to close at a new all-time high. 

  • Latin America continues to surprise investors with absolute and relative strength in 2025—the collective advance is all the more compelling considering that oil prices have trended lower. 

  • While the resource-rich region benefits from higher copper and gold prices, bear markets in energy commodities usually spell near-term doom. 

• Elsewhere, the sharp rise in the Taiwan dollar over recent weeks has helped lift the iShares MSCI Taiwan ETF (EWT) back near its pre-Liberation Day highs, now up three weeks running. 

• For the year, the Vanguard FTSE Developed Markets Index Fund (VEA) has returned 13%, and the Vanguard FTSE Emerging Markets Index Fund (VWO) is up 5%, all while the S&P 500 Trust ETF (SPY) is down 3.4%.

In the bond market, interest rates kept calm before, during, and after the May Fed meeting. Chair Powell and the rest of the Federal Open Market Committee (FOMC) left the policy rate unchanged, as expected, last Wednesday. 

• Powell also gave little indication of future moves as the central bankers wait to see how the macro picture plays out, given the fluid tariff situation. 

• The yield on the benchmark 10-year Treasury note closed the week at 4.375%, up five basis points. 

• We did notice, however, that bond prices moved more in tune with how stocks performed during upswings last week—our team took that as a healthy sign. 

  • In March and April, rate rises (lower bond prices) often corresponded with equity selloffs; not so lately. 

• For perspective, Treasury yields from 3.8% on the short end to 4.8% on the long end are normal—stocks can do fine with that bond-market backdrop.

Wrapping things up with commodities, gold (GLD) was just a few dollars from printing a fresh all-time closing high on the weekly chart. 

• The precious metal tagged $3,500 per ounce for a moment on April 21 but then corrected to a low of $3,202 at the close of last month. 

• Gold has oscillated in the last few weeks after its historic run to begin 2025. All the while, bitcoin (IBIT) has been on fire. 

  • The world’s largest cryptocurrency reclaimed $100,000 last Thursday, hitting its best mark since January. By the weekend, $104,000 was in play. 

  • Bitcoin merely bounced compared with ether’s exceptional jump—it leapt 30% for the week, hitting $2400. 

• Lots of big moves, but DXY price action was merely choppy, wrapping around the 100 spot.

Weekly Calendar Look Ahead

Eco data picks up this week after the recent lull, highlighted by April CPI and Retail Sales. Before any numbers hit the tape, the market’s reaction to weekend trade talks between the US and China is in focus. Treasury Secretary Bessent met with the Chinese delegation to hash out new terms for the effective embargo between the world’s two largest economies. President Trump was not directly involved, as he prepared for a second overseas trip (the first one that was planned). The POTUS visits Saudi Arabia, Qatar, and the UAE from Tuesday through Friday this week.

With the macro spotlight on China tariffs, Monday is light on economic news. 

• More Fed speak (that began on Friday) is scheduled, along with Treasury bill auctions and the monthly Treasury Budget Statement to be released in the afternoon.

On Tuesday, all eyes are on the April CPI report, which comes at 8:30 a.m. ET. 

• The consensus calls for a 0.3% monthly rise in headline prices, while the core rate is seen climbing by the same. That would bring the year-on-year rates to 2.4% and 2.8%, respectively, still materially above the Fed’s 2% target. 

  • Tariff impacts won’t be seen in the April price survey—even the May report might not capture the effect of much higher levies on imported goods. 

  • Moreover, if we see a slew of trade deals in the weeks ahead, the much-hyped inflation tsunami could turn out to be just a ripple—stocks seem to be coming around to that idea, all while the media reports one macro spook-job after another. 

• Shortly after the CPI report’s release, this past week’s retail activity will be noted in the Johnson Redbook retail sales survey—it continues to indicate household spending resilience. 

• Lastly, an update on Total Household Debt publishes later that morning.

Wednesday lacks major macro data points, but it will be a day chock-full of conferences. 

• We’ll be particularly interested in what sentiment is like from the 2025 Sohn Investment Conference, a gathering of hedge fund managers and industry experts. 

• The J.P. Morgan Global Technology, Media, and Communications Conference also occurs mid-week. 

• The Fed’s Waller, Jefferson, and Daly present throughout the day.

Thursday’s data slate is long. 

• First, macro clues on the consumer will be offered when Walmart (WMT) reports Q1 results in the early morning. Alibaba (BABA) posts profit numbers before that. 

• Then comes the April Retail Sales report, which is expected to show a 0.1% rise in the headline figure and a 0.3% jump in the Core Control group (which feeds into GDP). 

  • Last Friday, BofA said it sees a particularly weak April spending update—its research team expects decreases of 0.5% in both Retail Sales ex-autos and the Core Control group. 

  • Still, with card spending data showing growth year-on-year and Redbook firmly in the green, BofA is far from the consensus. 

  • The consumption zeitgeist from last month was no doubt the stockpiling of goods ahead of tariff impacts. 

  • Interestingly, Chinese e-commerce sites Temu and Shein reported sharp drops in sales once tariffs were imposed on many of their products—it turns out that American consumers simply chose to buy less from China rather than pay steeper prices. 

  • Maybe that savings will be put toward summer trips—airfare prices are down sharply from 12 months ago. 

• The Producer Price Index (PPI) report prints at the same time as Retail Sales, and it’s forecast to show a 0.2% rise in wholesale prices last month, with the core rate rising by 0.3%. 

  • The spotlight is on the PPI YoY figure on the ex-food, energy, and trade metrics, which are seen as having increased by 3.4% for April. 

  • With real-time inflation gauges holding steady lately and considering solid card spending trends, our team thinks this could be a Goldilocks series of data points, which would likely send stocks higher. 

• Other variables will be at play, including the May NY Empire Fed Manufacturing Index and the Philly Fed Manufacturing Index, which are also released at 8:30 a.m. Thursday. 

• Initial Claims hits then, and it remains low. 

  • The previous week’s jump above 240,000, which we called out as a one-off due to spring break in New York City, was reversed.

  • There remain few hard-data signs of a material deterioration in the labor market. 

• Macro-onlookers will be reeling from the data deluge when Fed Chair Powell approaches the podium to speak at the Thomas Laubach Research Conference. 

• There’s more: Industrial Production and Capacity Utilization for April come right before the bell, while housing data crosses the wires at 10 a.m.

Friday features a few more clues via April Housing Starts and Building Permits (leading indicators), April Import and Export prices, and a first look at May University of Michigan Consumer Sentiment. 

• Once again, we expect traders to look beyond the politically biased UMich survey, though the media will surely make it the talking point of the day.

Fiscal Policy Framework

Bessent and US Trade Representative Jamieson Greer met with Chinese Vice Premier He Lifeng in Switzerland over the weekend; the high-stakes negotiations aim to break the months-long stalemate between the US and China. Our gauge of expectations of the pow-wow was not all that optimistic that a deal in principle would be reached. So, the bar was likely low heading into the trade talks. While “significant progress” was made, the statement out of the White House was light on details Sunday night. 

Markets were steady, rallying only slightly last week when President Trump said an 80% tariff rate would be “about right.” Thus, it’s clear that the 145% current levy won’t last long. Trump has signaled a willingness to lower tariffs if China reciprocates, raising hopes that the weekend talks could de-escalate tensions and lay out a roadmap for other deals.

Before the pivotal meeting, the POTUS announced the framework of a landmark trade deal with the UK last Thursday, the first major agreement since the administration’s tariff overhaul. The White House boasts that the deal promises to expand US market access in the UK by $5 billion, mainly benefiting American agriculture and industry, while maintaining a 10% reciprocal tariff on most goods. It also addresses longstanding issues like non-tariff barriers and sets the stage for cooperation on steel, aluminum, and investment security.

On Capitol Hill, the House prepares to advance the president’s Big, Beautiful Bill. The reconciliation package faces challenges, such as GOP internal divisions over provisions like the deductibility of state and local taxes (SALT) and the extent of Medicaid cuts. Republicans hold a slim majority, so any dissenting votes would be damaging. Still, even RINO (Republican In Name Only) party members would surely face intense backlash if they went against the commander-in-chief; Memorial Day remains Speaker Mike Johnson’s deadline. The Senate, meanwhile, is expected to draft its own version, which would favor a deficit-financed approach with smaller spending and larger tax cuts, but final passage could be a drawn-out process. 

Opportunities and Risks

The bears have had plenty of time to sell the rally, yet stocks are holding up. That tells us that all the negative media narratives and inflation fearmongering are sideshows. Could the S&P 500 pull back? Sure, but we would expect to see a steadier rolling over of price action rather than the resilient dip-buying nature lately. To wit, stocks have generally closed higher than where they opened in daily sessions since April 22. 

What’s more, the latest rise in interest rates has not been a negative catalyst for equities—a positive signal. Another opportunity? We are actually in what has recently been a bullish calendar stretch—our research team found that in the last 10 years, the May through July period has featured 26 up months compared to just two down months (this May included). Finally, we are encouraged to see corporations buying back their shares at a record pace this year, according to J.P. Morgan, while the breadth of dividend-increase announcements is high, per Wall Street Horizon.

To note the bearish risks, we are almost all the way through what has been a strong Q1 earnings season. FactSet notes that the Q1 S&P 500 EPS growth rate was just 7.1% back on March 31. Jump ahead to today, and it's 13.4%. So, though WMT and other retailers have yet to report, the focus will shift away from strong corporate profits and perhaps toward what could go wrong now that the S&P 500 is not far from 21x forward earnings estimates.

We must also be on watch in the bond market. While steady, if rates rise above 5%, that could quickly worry investors. Furthermore, if Powell comes out adversarial on cutting rates, a renewed battle between him and Trump might ding marketwide confidence.

Finally, although our team doesn’t expect a sharp drop in net employment, jobless claims and layoff announcements must be monitored closely as the second quarter progresses.

Quick Hits

• 23% of companies mentioned "recession" during Q1 earnings calls, but only 2% mentioned "layoffs.” - Goldman Sachs

• 2025 EPS revisions are tracking near the historical pattern, while firms are maintaining guidance more than usual.

• Prediction markets expect 3.2% US CPI this year; it was +9% at the June 2022 Biden-era high.

• The bond market prices in three to four Fed rate cuts over the next 12 months. 

  • Of course, there's some crash risk priced into the Fed Funds future curve, so two or three quarter-point eases may be more likely now through the end of Powell’s term (May 2026).

• Goldman Sachs data show that cash holdings as a percentage of total portfolio assets has increased since late last year—that could fuel a rally as 2025 progresses.

• International stocks (VEU) closed at an all-time high weekly settle last week, evidence of strong global equity breadth.

• US gas prices are now down 54 cents from a year ago, though natural gas prices are up sharply.

• The share of 401(k) participants taking a hardship distribution dropped in Q1 2025, while wage growth for higher-income households remained at 2.3% YoY in April, while it was 1.5% YoY for lower-income households – BofA.