The U.S. and the U.K. have struck a new trade deal. This is the first since new tariffs were announced last month, but it maintains a 10% tariff on most U.K. imports, with potential 25% tariffs on cars beyond 100,000 units. In exchange, the U.K. will lower tariffs on some U.S. exports, like beef and ethanol, while U.S. tariffs on U.K. steel and aluminum will be eliminated. Though the economic boost from this is modest (the U.K. accounts for just 4% of U.S. exports), it's a sign that trade talks are moving forward. Up next: U.S. officials head to Geneva for discussions with China. Progress here could be a game-changer, as even a temporary tariff reduction could ease economic strain. Expect the rumor mill to be running on overdrive and juicing markets.
The Federal Reserve held interest rates steady at 4.25%–4.5%, marking its third straight pause amid tariff concerns. Despite unemployment sticking at a low 4.2%, the Fed flagged the risks of both higher inflation and unemployment. The bond market is betting on three rate cuts this year, starting as early as June or July. The Fed’s own projections are slightly more conservative, eyeing two cuts. In his press conference on Wednesday, Powell offered no quarter to the idea that the Fed should be acting proactively. But if tariffs do inflate prices rapidly, the Fed may have impossible decisions to make as the economy slides.
In the services sector, things were mixed. The S&P Services PMI dipped to 50.8 in April, barely staying in growth mode, while the ISM Services PMI improved to 51.6, its tenth straight month of expansion. Services are mostly shielded from tariffs, but prolonged trade tensions could still hit consumer sentiment, which makes up a hefty 72% of the economy.
On Wall Street, stocks have bounced back lately, although all major indices closed slightly negative for the week. Large- and mid-cap names regained huge ground over the last month thanks to easing trade fears and solid earnings. Small- and mid-cap indexes notched their fifth consecutive week of gains. Despite lingering concerns over the still massive barriers and trade deficits with China and others, investors are optimistic about further tariff de-escalation.
What This Means for Investors
Trade talks are back on the menu; the Fed is cautiously watching the economy. Stocks are slowly climbing out of their tariff-induced funk. If tariffs ease and rate cuts arrive, it could mean smoother sailing for markets, even if the economy doesn’t quite return to form. Keep an eye on those China negotiations, and any related tweets/truths related to when and how much stock to buy.
Market Activity
A pretty uneventful week market-wise compared to what we’ve been used to lately. Although Bitcoin did rally back over $100k.
Stocks
Fixed Income
Economic Reports
The Fed maintained rates as expected. The odds for a June cut are ~17%, and basically 0% if you take Powell at his word that they will be waiting and seeing for a while. Even if CPI comes in soft next week, I don’t think there is a chance the Fed would cut in June unless tariffs get rolled back.
CPI and retail sales next week will offer a better idea of how the consumer is holding up and tolerating this environment.
Last Week
Next Week
Earnings Releases
Q1 earnings was more successful than expected, and contributed to the upswing in stocks recently. As of Friday, revenues were +4.8% and earnings +13.4% YoY. 78% of reporting companies beat EPS estimates, better than both the 5- and 10-year average. Earnings revisions for the remainder of the year have been rolling in though, so the forecast for the full year 2025 is 9.3% YoY.
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Next Week
Recommendations
Economics, Applied
- A Softer Sort of Slowdown | Dr. David Kelly’s weekly newsletter from Monday takes a level-headed view of our current situation, as well as the risks and upsides.
- A data-driven Fed need not be a behind-the-curve Fed | Sahm great analysis on the Fed’s decision making process.
- Globalization did not hollow out the American middle class | Separating myth from fact regarding the impact of globalization on the US and the middle class.
- Yes, Econ 101 is underrated | The foundations of economics are the foundations of understanding a complex world. Supply and Demand really do explain 90% of the way most things work.
- Three Things — BRK vs the S&P 500 | All three things are good, and BRK gets the title probably due to Buffett’s departure, but it's the bit about the rich economist that I liked the most.
Mark It
- May 2nd, the S&P 500 closed above its pre-liberation day close. It took 30 days.
Chart(s) of the Week
Paul Krugman’s recent Crypto Is Still for Criming highlights the now even opener-air shadiness permeating the space. But no one, not even Paul, can cover it like Molly White.
The red line is when the dinner for the owners of $TRUMP was announced. Would you look at that renewed interest!
Sentiment is at the lowest of lows…and (retail) investors can’t stop buying. It doesn’t matter what people say. It matters what they do.
Source: @LarryAdamRJ (who also has the best
Double-header from Torsten Slok. The inflation call is coming from inside the house.
Source: Dallas Federal Reserve; Apollo Chief Economist
Source: Dallas Federal Reserve; Apollo Chief Economist
US productivity growth is stalling, but hardly in the red zone yet. Productivity usually tracks with economic output, and falling productivity is indicative of a slowdown. The long-term average is 1.5,% and we remain above that year over year.
Source: J.P. Morgan Asset Management
Many of the largest US companies, such as Apple and 3M, are buying back stock at a furious clip. After hesitancy to deploy cash around the tariff announcements, companies are no longer holding back, and this is helping put a floor on the market that isn’t drying up anytime soon.
Related: Wall Street Cheers While Main Street Worries: Inside Biden’s Market