Stocks Surge on Trade Optimism and Earnings

Summary:

US equities were higher this week as the S&P 500 and Nasdaq posted their second-best weeks year-to-date. Both posted the second weekly gain in the past three after the big early April selloff. High beta names outperformed minimum volatility by the most since Nov-22 (USMV +0.9%, SPHB +8.6%). Retail favorites, most shorted, China exposed, and tariff exposed names were also among the best performers, according to StreetAccount’s thematic macro baskets . Big tech was a leader with TSLA +18.1% and NVDA +9.4% the standouts. Other outperformers included semis (SOX +10.9%), copper and aluminum, credit cards, investment banks, toys, entertainment, online brokers, China tech, and casinos. Underperformers included telecom, HPCs, food and beverage, managed care and Medicaid MCOs, precious metals miners, road and rails, auto parts, and energy. Treasuries were a bit firmer with the curve flattening. The dollar index was up 0.1%. Gold was down 0.9%, only the third weekly decline YTD. Bitcoin futures were up 11.7%. WTI crude was down 1.6%.

What happened?:

Trade remained the biggest focus for markets. Stocks were hit Monday on a broad “Sell America” move after trade tensions with China continued to escalate and fears grew around a cold war with Beijing beyond trade (link). However, trade updates improved through the rest of the week. Reports and White House commentary suggested trade agreements with Japan and India are near (link). Treasury Secretary Bessent said Tuesday he sees de-escalation with China, calling the tariff standoff unsustainable, while Trump also said China tariffs are would come down substantially, but not to zero (Bloomberg). Trump’s comment was followed by a Wednesday morning media report that cited White House officials saying tariffs on Chinese imports would likely come down to between 50-65% from the current 145% level. China’s Ministry of Commerce said this week there are no ongoing trade talks with the US, and that all pronouncements of progress in negotiation are groundless (CNBC, Bloomberg). However, Bloomberg reported China’s government is considering suspending its 125% tariff on some US imports.

Concerns around Fed independence were also responsible for weakness earlier in the week. Last Friday, White House economic adviser Kevin Hassett told reporters the president’s team is still studying the possibility of firing Fed Chair Powell (Bloomberg). Trump also offered support for preemptive cuts on Truth Social, saying the economy could slow unless Powell lowers rates. However, Trump later said he has no intention on firing Powell (CNBC), while a number of media reports (Washington Post, link) also suggested Trump is cognizant of the potential market damage from any attempt to oust Powell, with Secretaries Bessent and Lutnick the most prominent voices in the White House trying to steer the Trump away from attacks on the Fed. Trump did say Wednesday that he may call Powell to push for rate cuts, arguing the Fed is making a mistake by not cutting (Axios).

Some Fedspeak this week offered relatively dovish takeaways. Fed Governor Waller said the Fed will continue to be data dependent, but a focus on data brings the risk of being late on policy actions (Bloomberg). Waller also said he still strongly believes tariffs will just be one-time upward price adjustment, but companies could offset tariff costs by cutting payrolls, which could ultimately prompt more cuts and sooner. Cleveland’s Hammack (non-voter) stressed patience, but did say the Fed could move in June if data present a clearer picture (CNBC). This week’s Beige Book reported economic activity was little changed since the previous report, but uncertainty around trade policy remained high and offered some stagflationary commentary. Markets are pricing in ~87 bp of cuts through year-end, little changed w/w.

This week included a mixed reception on the latest Treasury auctions. Tuesday’s $69B 2Y sale tailed 0.6 bp, Wednesday’s $70B 5Y auction stopped through 1 bp, while Thursday’s $44B sale of 7Y notes tailed 0.2 bp. Economic data were mostly weaker, adding to growth fears. April flash composite PMI of 51.2 marked a 16-month low, pulled down by a Services PMI miss at 51.4. However, manufacturing PMI unexpectedly turned back into expansion territory at 50.7. The report said employment rose but hiring was restricted, though prices charged rose at the fastest pace in 13 months. Friday’s Final April Michigan Consumer Sentiment was marked up from the initial print with better current and future expectations, though was still at the lowest level since Jul-22. The 1Y inflation outlook was also marked down 0.2pp to 6.5%, though that also remains the highest since 1981. March new home sales beat, rising to the fastest pace since September. March existing home sales fell 5.9% m/m to a 4.02M SAAR, the slowest March pace since 2009. Initial jobless claims were up slightly w/w at 222K, though continuing claims came in below consensus at 1.841M, the lowest since early February.

Despite some easing of trade and Fed independence fears, this week saw more cautious strategist commentary. Deutsche Bank cut its year-end S&P 500 price target from 7,000 to 6,150. The team said their new base case still suggests a significant rally on a credible retreat on trade policies, though that likely requires a significant decline in the Trump administration’s approval ratings. Jefferies strategists also cut their S&P 500 price target to 5,300 from 6,000, citing expected ~5% EPS growth this year, below the Street’s 10% consensus. RBC Capital Markets strategists were also the latest to flag weakening earnings revision momentum, noting upward earnings revisions no longer favor the top 10 market cap names, suggesting some erosion in the earnings case for megacap tech. However, BMO Capital Markets strategists highlighted some upside scenarios, including extremely negative forward-year earnings estimates, bearish indicators at record lows, and excessive risk aversion levels that typically precede solid S&P 500 gains.

In the first week of peak earnings season, Q1 metrics improved with the blended EPS growth rate jumping to 10.1% from 7.2% both last week and at end of the Q. However, a couple high-level themes emerged around earnings this week. FT noted that companies have increasingly mentioned tariffs and recession in earnings calls, suggesting growing fears around the business impact of the trade war. Bloomberg noted that nearly all margin growth for S&P 500 companies continues to come from big tech, leaving the rest of the index with a narrow margin for absorbing tariffs. Bloomberg also flagged earnings risks from a weaker dollar, noting just a third of S&P 500 revenue comes from overseas, while a weakening greenback is likely to raise import prices and erode consumer buying power.

Corporate updates:

GOOGL +7.1% beat on both the top and bottom lines, and raised both its dividend and buybacks. Cloud revenue was a bit light, though the segment’s operating profits came in higher than expected and management said data center demand again outpaced supply. Tesla missed on both the top and bottom lines, while the company removed a reference that it would return to growth in 2025. However, shares rallied as CEO Musk said he would spend less time at DOGE starting in May and the Trump administration easd self-driving rules. NFLX +13.2% beat as the company said it added a record number of subscribers, while margins and engagement metrics both improved.

Several companies pulled guidance given macro and tariff uncertainty (MAS -1.9%, SKX +0.3%) Other big themes from this week’s results included cautious consumer trends in food and staples (PEP -6.6%, CMG +7.5% PG -5.6%, KMB -7.8%) and credit cards (COF +12.3%, SYF +7.4%, AXP +5.4%); mobile phone competition (TMUS -11.2%, VZ -4.8%); resilient tech and semis performance (NOW +22.4%, LRCX +12%, TXN +9.7%); turnaround traction (BA +9.9%); slowing airline demand (LUV +7.1%, AAL +3.1%, ALK -7.2%); weak A&D (NOC -12.4%, RTX -2.9%, GD -1.5%) and transportation (SAIA -26.6%, UNP -3.2%) trends; and tariff tailwinds (WHR -1.8%, URI +7.1%) and headwinds (BKR -6.3%, MRK -6.1%).

Outside of earnings, AAPL +6.2% is planning to build most of its US-bound iPhones in India by the end of 2026. Intel announced plans to cut 20% of its staff. DFS +15.8% and Capital One Financial received final regulatory approvals for their proposed deal, which is expected to close in May.

Week ahead:

Another peak earnings week includes GM, KHC, UPS, SBUX, and V on Tuesday; CAT, META, MSFT and QCOM on Wednesday; LLY, MA, MCD, AAPL, and AMZN on Thursday; and CVX and XOM on Friday. Data next week include March JOLTS job openings and April Consumer Confidence on Tuesday; April ADP private payrolls, the first look at Q1 GDP, March core PCE, and March pending home sales index on Wednesday; ISM Manufacturing on Thursday; and March payrolls on Friday. Headline payrolls are expected to rise fall from the March 209K print to 150K, though the unemployment rate is expected to hold at 4.2%. Private payrolls are also expected to come in at 150K, suggesting zero government payrolls growth. Average hourly earnings are expected to hold at 0.3%.

S&P 500 Sector Performance:

• Outperformers: Tech +7.93%, Consumer Disc. +7.44%, Communication Services +6.36%
• Underperformers: Consumer Spls. (1.36%), Real Estate +0.21%, Utilities +0.52%, Energy +1.12%, Healthcare +1.92%, Materials +2.00%, Industrials +2.97%, Financials +2.98%

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