Equities Stall as Tariff Jitters and Fed Caution Weigh on Sentiment

US Weekly Recap: Dow (0.16%), S&P (0.47%), Nasdaq (0.27%), Russell 2000 +0.12%

Underperformers: Healthcare (4.26%), Communication Svcs. (2.42%), Consumer Spls. (1.05%), Real Estate (0.76%)

Overview:

US equities were mostly lower this week after putting in a strong performance last week when S&P reached levels above the early April drop following Trump’s reciprocal tariff announcement. Breadth was positive with S&P Equal Weight Index outperforming official one by 87 bps.

Big tech was mixed, GOOGL -6.9% was a notable laggard. Other underperformers this week included managed care, biotech/pharma, HPCs, railways, parcels/logistics, steel and homebuilders.Outperformers included apparel manufacturers, hotels, casinos, auto suppliers, machinery, banks, credit cards, and dollar stores.

Treasuries were mixed with yield curve flattening. The dollar was stronger against the major crosses ex sterling. Gold increased 3.1%, after logging two consecutive weekly declines. Oil was up 4.7% despite OPEC+ announcing output acceleration.

What happened?:

Stocks were mostly lower this week on the heels of recent recent nine-day S&P 500 winning streak, though losses were partially limited by some positive trade/tariff developments with a focus on de-escalation. Trump announced framework agreement with the UK which includes lower tariffs on UK-made autos to 10%, beef and steel/aluminum tariffs will be cut close to zero, though 10% universal tariff on UK will otherwise remain. Meanwhile, US and China set to hold initial trade talks this weekend. Treasury Secretary Bessent noted talks will focus on de-escalation rather than a sweeping deal. However, White House is considering a plan to cut China tariffs to 50-54%, while subsequent Bloomberg report noted US has set a target of reducing tariffs below 60% as an initial step. Elsewhere in trade headlines, EU is planning to hit €95B of US exports with tariffs if talks fail. US rejected Japan’s full exemption request from reciprocal tariffs. Trump ordered 100% tariff on foreign-made films.

May FOMC announcement was the other big event this week. Meeting ended with a hold at 4.25-4.50%, as expected. Policy statement added that risks of higher unemployment and higher inflation have risen. Powell offered little on possible June cut. He said during press conference he has not seen tariff impacts in the data yet, though shock still yet to come. Noted there are cases which rate cuts would be appropriate this year though also said he cannot confidently say he knows the appropriate rate path. BofA economists said Powell takeaways are net slightly hawkish, still expect no cuts this year. Deutsche Bank sees first cut in December, but risk of earlier move if unemployment rate rises. Market continues to dial back rate easing expectations as Fed stresses patience/caution. Overall market currently pricing in less than 70 bp of Fed easing this year.

Beyond trade and FOMC it was relatively quiet. April ISM Services topped forecasts, though uncertainty and higher prices remained in focus. Meanwhile, jobless claims declined week-over-week. Latest NY Fed survey showed rising inflation uncertainty coupled with deteriorating labor market expectations. Post-FOMC Fedspeak had negative tilt with multiple officials flagging growing risk of higher inflation, slowing growth, and rising unemployment. However, Richmond’s Barkin noted consumer spending and business investment are still very solid.

Overall, bulls this week were helped by a number of developments including 1) signs of trade de-escalation; 2) better than feared Q1 earnings; 3) China policy support with 10 bp rate cut; 4) ISM services new orders hit a four-month high in April; 5) oil-driven disinflation narrative further supported by more OPEC+ production; 6) favorable flow dynamics with systematic fund re-leveraging and resilient retail activity. However bears were supported by 1) continued tariff overhang on sentiment with Trump affirming 80% tariffs on China “seem right”; 2) consumer spending worries with bank surveys flagging plans to dial back spending; 3) ISM services prices paid highest since early 2023; 4) Fed continued to rule out pre-emptive easing; 5) Treasury’s $25B sale of 30-year bonds disappointed.

Earnings / Corporate highlights:

It was another big week for earnings though Q1 reporting season has now passed its peak. Q1 Y/Y growth at 13.4% with heightened macro uncertainty only leading to softer demand in select industries. TSM -1.5% reported nearly 50% jump in April revenue. PLTR -5.6% beat and raised, though bar high. UBER -1.7% gross bookings and guidance were below the Street. AMD +4.1% beat and guided above despite China AI chip ban. DIS +14.5% beat and raised, calling out strength in Entertainment and Experiences businesses. F +1.5% and MAT +5.2% among latest companies to pull FY guidance on macro/tariffs. MAR +3.4% positive on RevPAR growth in face of macro uncertainty. HIMS +27.4% beat though gross margins missed. SMCI -5.1% cut FY revenue guidance. RIVN +3.1% posted positive gross profit. SHOP -7.5% revenue and FCF ahead though Subscription segment was weaker. TAP -5.1% EPS missed with headwinds in EMEA and APAC. DNUT -36.7% a big decliner after it announced more drawn-out timeline to MCD +0.5% partnership. LYFT +31.6%beat on riders, bookings, EBITDA and FCF.

Beyond earnings, FT discussed how DoJ looking to force GOOGL -6.9% to sell key parts of its digital advertising business. Bloomberg reported AAPL -3.3% exploring adding AI search to its browser. NVDA +1.9% and other chipmakers were supported after report of possible repeal of AI Diffusion rule. NVDA +1.9%to release new version of H20 chip to comply with US restrictions and keep presence in China. TSLA +3.9% head of India reportedly resigned. WBD +6.2% may be considering split of company, according to CNBC report. US prosecutors, regulators investigating CRWD -4.2%.

Coming next week:

Notable macro events: Tuesday AM: April CPI; Thursday AM: Jobless Claims, April PPI, April Retail Sales, April Industrial Production, May Empire Sate Index; Friday AM: April Housing Starts, May Consumer Sentiment.

Notable earnings: Monday AM: FOXA; Monday PM: DVA, ZI; Tuesday AM: TME, UAA; Wednesday AM: TGI; Wednesday PM: CSCO, CPRT, DXC; Thursday AM: DE, WMT; Thursday PM: AMAT, CAVA, ROST, TTWO.

S&P 500 Sector Performance:

Outperformers: Industrials +1.06%, Consumer Disc. +0.81%, Utilities +0.53%, Energy +0.42%, Tech +0.26%, Financials +0.08%, Materials (0.38%)

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