Weekend Update #231
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Equity markets posted gains for the shortened trading week, marking the best May performance in the S&P 500 since 1990. Major drivers included a delay on EU tariffs and closely-watched Nvidia earnings results that showed strong underlying demand despite export controls to Chinese customers. Nvidia’s quarterly sales grew 69.2% year-over-year, and management provided forward guidance that met consensus estimates. Retailers Abercrombie & Fitch and Dick’s Sporting Goods gained as earnings demonstrating continued consumer demand and muted tariff impacts. Cadence and Synopsys shares fell on the news that the Trump administration would restrict sales of semiconductor design software to China. Elsewhere, companies continued to cite earnings pressures expected from tariff measures, with management teams' mentions of “tariffs” and “uncertainty” doubling in Q1 2025 earnings calls compared to last quarter.
Stocks rose on Tuesday as President Trump and European Commission President Ursula von der Leyen agreed to extend the tariff deadline to July 9th, delaying the 50% tariff threat that weighed on markets last week. Stocks were set for gains again on Thursday as President Trump’s global tariffs were deemed illegal and blocked by U.S. Court of International Trade. This ruling would lift tariffs on China, Canada, Mexico, and other countries that total 6.7% of tariff measures announced this year. However, optimism faded as the Trump administration expressed confidence in an appeal and alternative approaches to implement the same tariff levels. Tariff uncertainty was further heightened on Friday as news broke that the U.S. planned broader tech restrictions on China and Trump accused China of violating its trade agreement on critical mineral exports.
A rally in long-term Treasuries aided the picture this week following announcements that Japan would trim its long-term bond issuance. Slightly offsetting positive developments, investor concern grew this week around the “One Big Beautiful Bill Act’s” potential to deter additional foreign investment due to technicalities in the bill that allow for 20% tax increases on “discriminatory foreign countries”. This could target France and Germany, which together hold ~$475 billion of U.S. government bonds.
In economic data for the week, the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, showed stability despite tariff announcements. In April, PCE rose 0.1% month-over-month and 2.1% year-over-year, slightly below economists’ estimates. The closely watched initial jobless claims figure was higher than expected this week at 240,000 compared to the consensus estimate of 230,000, which reinforces the risk of upward pressure on unemployment. Q1 2025 GDP revisions also showed slower consumer spending and lower corporate profits, which pose risks to both unemployment and economic growth. In May, Consumer Confidence and Consumer Sentiment both rebounded following the May 8th tariff pause for trade negotiations, so clarity around the finalization of tariffs may have a meaningful impact on consumer spending going forward.
Friday’s Close (Weekly Performance)
S&P 500 5,911.69 (+1.88%)
Nasdaq 19,113.77 (+2.01%)
Dow Jones 42,270.07 (+1.60%)
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