By Jack Kraft, CFA, Vice President, Investment Strategist
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U.S. equities were mostly flat during a busy week of “Deal or No Deal” trade headlines, corporate earnings reports and updates from the U.S. Federal Reserve (Fed). Stocks caught a bid Thursday following the announcement that the United Kingdom was the first country to ink a deal with the United States since the April 2nd tariff announcement. Negotiations are ongoing but will likely set a framework for other countries that look to strike a deal. The main takeaways include a 10% baseline tariff on U.K. imports, with additional agreements around steel, automobiles and agricultural products. All three of the major indices ended the week slightly below positive, with the S&P 500 down 0.5%, the Nasdaq down 0.3% and the Dow off by 0.2%.
More notable is the sharp rebound in stocks following the initial sell-off in April. Over the past five weeks, 10 of the 11 S&P 500 sectors have posted gains, with the technology sector surging 19.3% and the broader S&P 500 rising more than 11.0%. This underscores that news flow will likely continue to drive market sentiment in the short-term. In fact, at the time of this writing, futures are jumping on positive trade developments between Chinese and U.S. officials. The two countries agreed to temporarily reduce tariffs by 115% for 90 days—bringing U.S. tariffs on Chinese goods from 145% to 30%, and China duties on U.S. imports from 125% to 10%. Consumer discretionary names such as Best Buy, Amazon and apparel companies are surging on the news.
The lone sector in negative territory over the past five weeks is healthcare, off nearly 2%. Another blow was just dealt to pharmaceutical companies over the weekend as the Trump administration announced the intent to sign an executive order aimed at lowering some prescription drug costs by “30% to 80%.” The policy sets a cap on how much the U.S. government pays for certain medications by linking prices to those paid in other developed countries. The new administration has proven to be a big overhang for the healthcare sector with news of a new nominee for Surgeon General also weighing on sentiment last week.
Elsewhere, the Federal Open Market Committee meeting was largely uneventful, with the Fed remaining in “wait and see” mode. The federal funds rate was left unchanged, as Chairman Jerome Powell cited uncertainty around the impact of tariffs—particularly with respect to unemployment and potential inflation. The Fed’s main challenge is the divergence between soft data, such as surveys that point to slowing growth and rising prices, and hard data—like nonfarm payrolls and the Consumer Price Index—which tends to lag and has yet to show signs of deterioration. For now, interest rates remain accommodative relative to the business cycle, as inflation sits above average and U.S. equity markets continue to hold up well. According to the CME Group’s FedWatch tool, traders are pricing in the likelihood of three 25-basis-point rate cuts in the second half of the year, though such moves will likely require further weakening in hard data.
Another positive takeaway last week was first-quarter corporate earnings reports, which came in well above expectations. The S&P 500 is on pace to grow first-quarter earnings per share by 12% year over year, double the 6% initially forecasted. Mega-cap technology companies regained focus with the Magnificent Seven (minus NVDA, which reports on May 28) showing profit growth of 28% versus 9% for the S&P 493. Artificial intelligence emerged a winner from this quarter’s earnings season as Google parent company Alphabet reaffirmed guidance for capital expenditures and Meta raised its capital expenditures range. The other common theme across earnings reports this season was uncertainty. Roughly 23% of companies mentioned the word “recession” on earnings calls, the highest since the second quarter of 2022.
Looking ahead to this week, investors will have no shortage of news with economic updates, Fed speeches and earnings reports. Headlining the economic calendar will be inflation updates with the Consumer Price Index (CPI) on Tuesday and the Producer Price Index (PPI) on Thursday. Other notable releases include consumer sentiment data, retail sales, housing starts and building permits. Markets will be looking for how the U.S. central bank is interoperating the effects of the new trade deal on the broader economy. Fed Chairman Jerome Powell speaks on Thursday, while other Fed governors and presidents speak throughout the week. Earnings season will remain in full swing with Walmart, Applied Materials, Deere, Cisco, On Holding, Under Armor and Take-Two Interactive.
Economic Calendar May 12 – May 16
| Time (ET) | Report | Period | Median Forecast | Previous |
| MONDAY, MAY 12 | ||||
| 10:25 AM | Fed Governor Adriana Kugler speech | |||
| 2:00 PM | Monthly U.S. federal budget | April | $256B | $210B |
| TUESDAY, MAY 13 | ||||
| 6:00 AM | NFIB optimism index | April | 95 | 97.4 |
| 8:30 AM | Consumer price index | April | 0.20% | -0.10% |
| 8:30 AM | CPI year over year | 2.30% | 2.40% | |
| 8:30 AM | Core CPI | April | 0.30% | 0.10% |
| 8:30 AM | Core CPI year over year | 2.80% | 2.80% | |
| WEDNESDAY, MAY 14 | ||||
| 5:15 AM | Fed Governor Christopher Waller speech | |||
| 9:10 AM | Fed Vice Chair Philip Jefferson speech | |||
| 5:40 PM | San Francisco Fed President Mary Daly speech | |||
| THURSDAY, MAY 15 | ||||
| 8:30 AM | Initial jobless claims | 10-May | 227,000 | 228,000 |
| 8:30 AM | U.S. retail sales | April | 0.10% | 1.40% |
| 8:30 AM | Producer price index | April | 0.30% | -0.40% |
| 8:30 AM | Core PPI | April | 0.30% | -0.10% |
| 8:30 AM | PPI year over year | — | 2.70% | |
| 8:30 AM | Empire State manufacturing survey | May | -8 | -8.1 |
| 8:30 AM | Philadelphia Fed manufacturing survey | May | -10 | -26.4 |
| 8:40 AM | Fed Chairman Jerome Powell speech | |||
| 10:00 AM | Home builder confidence index | May | 40 | 40 |
| 2:05 PM | Fed Governor Michael Barr speech | |||
| FRIDAY, MAY 16 | ||||
| 8:30 AM | Housing starts | April | 1.36 million | 1.32 million |
| 8:30 AM | Building permits | April | 1.45 million | 1.48 million |
| 10:00 AM | Consumer sentiment (prelim) | May | 53 | 52.2 |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market