Hope you are all doing well. The S&P 500 finished the week up more than 5% as the major U.S. indexes rebounded sharply from the previous week’s fractional declines. The latest results marked the fourth positive week out of the past six as stocks continued to regain their footing following the sharp declines recorded in late February to early April. The NASDAQ has generated more volatile results than other major U.S. indexes in recent months. On Monday it entered a bull market just six weeks after sinking into a short-lived bear market. The index’s 4% gain on Monday pushed it more than 20% above a recent low on April 8. On Friday, the NASDAQ closed less than 5% below its record high set on December 16, 2024. Legendary Broadway composer Charles Strouse passed away this week. I have broken down this week’s updates using some of his more memorable songs.
Put on a Happy Face (Bye Bye Birdie)
The Trump administration slapped on a happy grin and walked back the tariffs on China for the next ninety days. The tariffs so far have not really accomplished anything. This pause really got us no major concessions from China. Additionally, the pause on the other countries expires in July. To date, we still have not got pen to paper on a single formal trade agreement. Just the outlines of a plan with the UK. Most of U.S. stocks’ weekly gains came on Monday following trade negotiations with China. Overall there is increased optimism that deals will get done soon. The move in the market is 100% fueled by optimism. I am usually an optimist but I think this move higher in stocks is not sustainable if we do not start to get formal trade deals announced over the next 5 or 6 weeks. If we get to July and we still don’t have any formal trade deals I believe the market will stop giving the administration the benefit of the doubt that they are going to get deals done. In that scenario, I would not be shocked if the President re-escalates his tariff threats and the market heads back down.
Maybe (Annie)
So maybe now it’s time for the Fed to think about cutting rates. The Consumer Price Index (CPI) report showed that price increases continued to moderate in April even as higher tariffs began to take effect. Prices rose 2.3% over the same month a year earlier, down slightly from March’s 2.4% annual inflation rate. The CPI number was the smallest increase since February 2021. Excluding volatile energy and food prices, core inflation was unchanged at 2.8% in April relative to March. Couple the inflation data with the labor market data which indicates a decrease in hiring, rising unemployment, and a slowdown in wage growth it gives you the ingredients needed for a rate cut. Generally, falling inflation, alongside a weakening labor market, encourages the Fed to consider rate cuts.
Those Were The Days (All in the Family theme song)
Apparently, US consumers don’t feel like we could use a man like Herbert Hoover again, to paraphrase the song. U.S. consumer confidence fell for the fifth month in a row to the lowest level in nearly three years. The University of Michigan said on Friday that a preliminary reading from its Index of Consumer Sentiment fell to 50.8 from a final reading of 52.2 in April. Similarly, Trump’s daily Rasmussen approval index bottomed on April 9, right before he started to walk back the tariffs. The market usually turns around when consumers feel the bleakest which is what happened in mid April. Currently most economists predict that sentiment will improve in May. Trump’s approval has risen dramatically since 4/9 and that is important because it improves the chances that Republicans will get their “big beautiful bill” across the finish line. The bill includes an extension of the Trump tax cuts. It also includes a significant tax break if you are older than 65. Instead of eliminating taxes on Social Security benefits, the House bill includes a tax break for all senior citizens: an extra $4,000 tax deduction for filers who are 65 and older.
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