A little profit-taking crept in this past week as trade talks began to heat up and investors pruned their portfolios ahead of this weekend’s trade negotiations with China. You can’t blame investors as the rally off the early April lows has been substantial, relentless, and to many, quite surprising (see below). Earlier in the week, the U.S. struck a trade deal with the United Kingdom, which went somewhat unappreciated by market participants.
We again reiterate that “our sense of the current environment is one where the stock market as well as interest rates remain somewhat rangebound, supported by a modestly growing economy, low unemployment and the possibility of ending the trade war but kept from bolting higher as investors worry that these negotiations may take longer than expected and the yet to be determined economic impact from President Trump’s unconventional relationship with our allies and adversaries, alike. Simply put, the market is biding its time to see how things play out.”
- As noted above, the U.S. struck the foundations of a trade deal with the U.K., the contents of which include the removal of tariffs on British steel and aluminum; the reduction and perhaps elimination of tariffs on U.S. beef and ethanol; a 10% tariff imposed on the first 100,000 automobiles imported from the U.K., increasing to 25% thereafter and the promise to continue negotiating further on digital trade provisions and pharmaceutical access.
- At the conclusion of their two-day meeting this past Wednesday, the Fed announced that interest rates, as represented by the Federal Funds Rate, would remain within a range of 4¼ and 4½ %. Within the policy statement it was noted that “the committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.” In response, President Trump said on Truth Social, “’Too Late’ Jerome Powell is a FOOL, who doesn’t have a clue. Other than that, I like him very much!” Our guess is that the war of words between Powell and Trump will continue right up until the end of Powell’s term on May 15, 2026.
- Despite nearly echoing what our Federal Reserve had to say within their policy statement following their meeting, after which, they concluded not to cut interest rates, the Bank of England cut their key lending rate by 0.25% to 4.25% one day later. The BOE noted that the “prospects for global growth have weakened as a result of this uncertainty and new tariff announcements, although the negative impacts on UK growth and inflation are likely to be smaller.” Go figure.
- Given the ongoing trade negotiations that will most likely last well into the third quarter, the old Wall Street adage of “sell in May and go away” might not be a bad idea this year. Historically, approximately two-thirds of the gains in the market are made within the six-month period beginning November 1 whereas the other six-month period that just began May 1 tends to be lackluster. In our opinion, we expect continued volatility, but perhaps a range-bound market over the latter timeframe.
- Mr. Market usually makes those making emotional decisions look silly. From the Bloomberg article, “Big Wall Street Comeback Is Upending a Slew of Bear Market Bets,” “Trades that got crowded in April’s tumult have suddenly become vulnerable, among them shorting the US dollar, betting against equities and wagering on higher market volatility.” The article went on to admit that “while the strategies may well end up proving prescient as trade squabbles play out, as of now they’re becoming lessons in the risk of making hasty decisions during an era of whiplash market swings.” This is precisely why we recommend executing incremental portfolio allocations while remaining within your predetermined asset allocation model.
It’s The Economy…”
- NonFarm Productivity During the First Quarter fell by 0.8% (SAAR), after rising 1.7% during the fourth quarter and by 1.4% y/y. Hourly Compensation jumped 4.8% during Q1 (2.7% y/y). Adjusted for inflation, the Real Hourly Compensation rose by 1.0% during Q1 and by 0.0% y/y. (Source, U.S. Bureau of Labor Statistics)
- Initial Claims for Unemployment Benefits for the week ending May 3rd fell 13,000 to 228,000 from 241,000 the prior week, which went unrevised. The four-week rolling average rose by 1,000 to 227,000, which also went unrevised. FYI, historically Initial Claims become an issue when they reach 250,000 on a consistent basis. (Source, U.S. Department of Labor)
- The Federal Reserve reported that Consumer Credit outstanding rose $10.2 billion during March, after slipping $0.6 billion during February. Analysts had expected Consumer Credit to rise by $10.0 billion. Over the past year Consumer Credit has risen 1.9%. Non-revolving Credit (automobiles, consumer durables and student loans), which accounts for nearly two-thirds of total consumer credit, rose $8.3 billion during March (1.5% y/y) while revolving credit (credit cards) rose $1.9 billion (2.9% y/y). Importantly, consumer credit as a percentage of disposable income fell to 22.4% during March as compared to 22.9% one year prior. (Source, U.S. Federal Reserve)
- The U.S. Trade Deficit ballooned to $140.5 billion during March from $123.2 billion during February. The value of Exports rose 0.18% to $278.5 billion from $278.0 billion while the value of Imports surged 4.44% to $419.0 billion during March from $401.2 one month prior. According to Haver Analytics, “the U.S. goods trade deficit with China narrowed to a seasonally adjusted $24.8 billion in March from $26.6 billion in February. Exports to China declined 8.2% (-10.5% y/y) while imports weakened 7.2% (-2.7% y/y). The deficit with the European Union deepened to a record $48.3 billion in March from $30.9 billion in February. Exports rose 10.9% (14.5% y/y) while imports soared 34.0% (65.4% y/y). The deficit with Japan deepened to $5.8 billion from $5.2 billion in February.” (Source, Bureau of Economic Analysis)
Economic Reports scheduled to be released this week include the following: on Tuesday, Retail Inflation as measured by the April Consumer Price Index (CPI); on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits, Wholesale Inflation as measured by the April Produce Price Index (PPI), April Retail Sales, March Business Inventories, April Industrial Production and April Capacity Utilization; and, on Friday, April Housing Starts and May Consumer Sentiment from the University of Michigan.
Q1-2025 Earnings Season Has Begun To Wind Down. Nonetheless, several companies of note are scheduled to report, to include Cisco Systems (*CSCO), Deere (DE), Applied Materials (AMAT), Alibaba (BABA), Walmart (WMT), NetEase (NTES) and National Grid (NGG).