The Week in Review 5/12/25
“You can’t predict, [but] you can prepare.” ~ Howard Marks
Good Morning ,
Our markets were quiet last week, which continued in a consolidation pattern following the huge run up from the April 7 lows.The S&P 500 has recovered 14% from the April lows… in just over a month of trading.
A nine-session win streak for the S&P 500 was broken on Monday, serving as a precursor to a week where outsized moves were reserved for individual stocks with news.
Dow component Walt Disney, which impressed with Q1 results and better-than-expected guidance for the full year, and Alphabet, which struggled on concerns about AI challenges to its search business.
It was a huge week of earnings reporting, yet most of the market's focus was on the macro picture that included the following highlights…
- OPEC+ agreeing to raise its production output in June by 411K barrels per day.
- The U.S. trade deficit hitting a record $140.5 billion, as imports surged in a tariff frontrunning move.
- India launching attacks on nine sites in Pakistan, and Pakistan vowing a response to those attacks.
- An indication that Treasury Secretary Bessent and U.S. Trade Representative Greer will meet China's Vice Premier He Lifeng in Switzerland over the weekend with an aim of de-escalating the tariff/trade situation.
- The People's Bank of China lowering its 7-day reverse repurchase rate by 10 basis points to 1.40% and the required reserve ratio by 50 basis points to 9.00%.
- The FOMC voting to leave the target range for the fed funds rate unchanged at 4.25-4.50%, and Fed Chair Powell declaring that the Fed will be patient before making any policy moves as it needs to see more data to understand better how the new administration's policies are affecting economic activity.
- The Bank of England lowering its cash rate by 25 basis points to 4.25%, as expected.
- President Trump announcing the first trade deal with the UK, which will involve keeping the baseline 10% tariff rate; and noting that several other trade deals should be following soon.
- President Trump touting the reconciliation bill and suggesting one should buy stocks now.
The best-performing sectors last week were the industrials (+1.1%), consumer discretionary (+0.8%), and utilities (+0.5%) sectors.
The worst-performing sectors were the health care (-4.3%), communication services (-2.4%), and consumer staples (-1.1%) sectors.
Tech continues to struggle… especially the beloved ”Magnificent 7”.
Earnings are impressive…
According to FactSet with about 90% of the S&P 500 reporting, profits are projected to climb 13.6% from a year ago. What’s not to like?
Interest rates are gently rising… the 2-yr Treasury note yield increased four basis points on the week to 3.88%, while the 10-yr note yield added six basis points to 4.38%.
The Fed’s reluctance to lower rates, when most of the global players are lowering is causing some friction in the bond markets… and with the White House.
The CME FedWatch Tool now predicts only a 17.3% probability now for a rate cut in June. We are still seeing a 50.4% probability of a ¼ point cut in July.
The U.S. Dollar Index jumped 0.4% to 100.42, garnering some support from the market's expectations for the next rate cut getting pushed out to the July FOMC meeting.
Have a wonderful week!!
Michael D. Hilger, CEP®
Managing Director
Senior Vice President, Wealth Management
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