Weekly Newsletter April 21st to April 25th
RECAPPING LAST WEEK
Despite trade negotiation confusion and the White House venting harsh dissatisfaction with the Federal Reserve for not lowering interest rates fast enough, U.S. equity indices surged last week with their first four-day win streak in two months. The Nasdaq Composite index soared 6.7%, while the S&P500 jumped 4.6% and the Russell 2000 rose 4.1%. The buying spree triggered the rare Zweig Breadth Thrust, a technical indicator that signals a sudden swell in advancing stocks on the NYSE, which has historically been followed by strong one-year forward returns. Ten of eleven S&P500 sectors finished positive, led by impressive gains in technology (+7.9%), consumer discretionary (+6.4%), and communications (+4.5%). U.S. Treasury yields edged lower after several FOMC officials said they would support rate cuts as soon as June if clearer signals of the economy’s direction emerge. Crude oil prices slid 1% after sources indicated that several OPEC+ members will suggest accelerated output increases in June, while gold futures retreated to $3,320 per ounce after briefly reaching yet another record high above $3,500. In economic news, U.S. flash PMI data revealed a slowing of business activity growth to start the second quarter, although both the manufacturing and services sector readings remained above the 50-level that separates growth from contraction. Average prices charged rose this month at the steepest rate in more than a year and were particularly evident in manufacturing. The final U.S. consumer sentiment index for April improved only slightly to 52.2 from 50.8–still the fourth-lowest figure in a historical series that began in the late-1970s—while one-year inflation expectations remained very high at 6.5%. U.S. housing data for March was mixed, with new home sales jumping more than expected as supply increased, while existing home sales slumped on affordability challenges. On the corporate earnings front, Procter & Gamble and Pepsico became the latest companies to cut profit forecasts and announce price increases, citing global trade turmoil. Overseas, the International Monetary Fund sliced its economic growth forecasts for most countries based on the potential impacts from tariffs. The group sees U.S. GDP at 1.8% for 2025 and 1.7% in 2026, with China at 4% for both years. Germany and the UK saw their flash services PMI readings fall into contraction as labor costs rose faster than selling prices. Good weather boosted retail sales in the UK by 0.4% in March, and the first quarter numbers were the best in four years. Finally, core inflation in Japan’s capital reached a two-year high at +3.4% YoY, but the central bank’s next move is still in doubt as policymakers weigh ongoing trade negotiations.
THE WEEK AHEAD
In terms of economic data, this week could be the most important thus far in 2025, but whether the rally in equities can continue likely depends on any potential de-escalation in trade tensions between the U.S. and China. In the U.S., investors must sort through the first look at Q1 GDP, March’s employment figures and PCE price index, as well as earnings from the largest technology companies. Consensus estimates for U.S. economic growth in the first quarter are currently at +0.4%, although some models are forecasting a contraction in activity. Either way, market watchers will be eager to see how the release plays into trade dialogues. Given the comments from Fed speakers last week, the jobs data could shed light on the impact of DOGE-related cuts and provide an indication of how employers are shifting their hiring practices. Meanwhile, last month’s core PCE price index reading—the final before tariffs were implemented—is expected to be mild at just +0.1% MoM. Some earnings reports may have market-moving potential, with Microsoft and Meta Platforms scheduled for Wednesday after the close, followed by Apple and Amazon on Thursday afternoon. The rest of the U.S. calendar includes ISM PMIs, consumer confidence, pending home sales, and factory orders. On the international side, the Bank of Japan is expected to hold rates steady for now, but market expectations are moving towards a potential hike in June as inflation ramps higher. Relations with the U.S. are expected to be a major factor in today’s Canadian parliamentary elections. In Europe, the focus will be on inflation and Q1 GDP updates. Last of all, China’s April PMIs—slated for release Tuesday evening—should provide the first glimpse into any potential tariff-related shocks.
CHART OF THE WEEK
Capital flows
The U.S. has on balance been the beneficiary of strong investment capital inflows for decades, but recent trends in Treasury notes and bonds along with the U.S. dollar have shown that investors are considering alternatives. In times of stress, capital tends to flow to assets that provide a measure of perceived safety, but investors also still seek investments that may produce positive expected returns. Gold has been one recipient of these inflows, as evidenced by its 25% gain this year. It appears that more investors are also looking at Bitcoin, given its global nature and the current geopolitical environment. Bitcoin and equities have been mostly positively correlated but diverged early this month after the initial tariff announcements. Despite its historically high volatility, Bitcoin is attracting attention as regulations ease and inflows from institutional investors and exchange-traded products ramp up. Last week, Bitcoin reclaimed $95,000 per coin and turned positive for the year. From a technical perspective, price has broken above resistance and confirmed a daily uptrend of higher highs and higher lows with momentum turning positive, as evidenced by the MACD study.
Source: Charles Schwab Corporation
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