Weekly Newsletter April 28th to May 2nd
RECAPPING LAST WEEK
U.S. equity indices rose for a second straight week after a solid jobs report and optimism around tariff negotiations with China. The S&P500, Nasdaq Composite, and Russell 2000 indices all advanced around 3%. S&P500 sector performance was broadly positive. Technology jumped 4% as better-than-expected earnings from Microsoft outweighed some underlying weakness in Apple and Amazon’s reports. The energy sector underperformed, pressured by a 7% plunge in crude oil prices to $58.50 per barrel. Gold futures continued their recent pullback from record highs, while Bitcoin inched closer to $100,000 per coin. U.S. Treasury yields initially fell after the Q1 advance GDP report revealed that economic growth contracted by 0.3%, the first such decline in three years. As expected, surging imports by companies stocking up on inventory ahead of tariffs was the main drag on growth. However, consumers also boosted purchases as spending increased at a 3% annualized rate in the first quarter. Inflation levels remained elevated, with the core PCE index expanding by 3.5%—although that number began to cool at the end of the quarter. U.S. job growth was better than expected in April, flipping Treasury yields to positive for the week. Nonfarm payrolls increased by 177,000, and while the prior two months were revised lower, the unemployment rate held steady at 4.2%. U.S. consumer confidence sank to five-year lows on tariff concerns with one-year inflation expectations rising to 6%. Although President Trump signed an executive order easing auto tariffs last week, both General Motors and Ford warned of bottomline impacts that could still be in the billions of dollars. Overseas, the Bank of Japan kept interest rates steady at 0.5% while slashing 2025 growth estimates in half. In China, manufacturing activity fell more than expected last month as demand softened, while services PMI slipped but remained in expansion territory. Economic growth in the Eurozone was better than forecasted in Q1 at 0.4%, but the region’s largest contributor, Germany, expanded by just 0.2%. Eurozone inflation was stubbornly unchanged in April at +2.2%, complicating projections for the interest rate outlook. Finally, Canadian Prime Minister Carney is scheduled to visit the White House soon after his Liberal Party scored a stunning turnaround to win last week’s federal election.
THE WEEK AHEAD
Despite last week’s negative GDP report and continued pressure by the U.S. administration to lower interest rates, the Federal Reserve is expected to stand pat when Wednesday’s FOMC statement is released. The finer details of the GDP and employment reports, along with recent company earnings, suggest the U.S. economy was firm heading into the second quarter. Consumption and investment data are holding up as well, even with the huge jump in goods imports and the dour outlook from sentiment surveys. Market watchers will likely focus on Chair Powell’s remarks in the press conference for any clues as to the Fed’s thoughts on an uncertain economic environment. No less than 10 FOMC members are scheduled for public appearances later in the week. Other releases on the domestic economic calendar include 10- and 30-year Treasury auctions, ISM services PMI, consumer credit, and Q1 non-farm productivity and unit labor costs. Earnings season is winding down, but reports from Advanced Micro Devices, Palantir, Disney, Wynn Resorts, Arm Holdings, and Uber will likely garner attention from investors. Overseas, the Bank of England is expected to cut rates by 25 basis points on Thursday. Headline CPI has cooled in the UK recently, but with services inflation still running hot the central bank’s future path is less certain. Last of all, China is tentatively scheduled to release April’s trade balance figures this week, and the country’s inflation updates will arrive Friday evening.
CHART OF THE WEEK
Inflection point
The S&P500 index (SPX) gained ground every day last week and has advanced for nine consecutive sessions, surging 10% in the period. Volatility levels have plunged as tariff saberrattling slows, and the hard economic data have yet to reflect the soft data from sentiment indicators. While tariff concerns have not gone away, the 90-day pause along with other adjustments have led to a short-term technical uptrend for U.S. equities. In a recent webcast, different potential paths for SPX—including a bullish and bearish alternative—were presented using Elliott Wave Theory. Interestingly, both potential paths pointed first to a significant rally in SPX, most of which has already taken place. The area near $5,760 is the next main inflection point to consider. Either path will likely align in the near term with a nod to resistance and a potential pullback from that inflection point, but how that develops may shed light on the longer-term trend’s progress. A sharp 5-wave decline would suggest lower prices for the foreseeable future (blue letters/numbers on chart). A shallow 3-wave decline would suggest the alternative count (purple) that may find support near $5,500, bringing in the potential for a V-shaped rally to new highs. Thus far, other technical indicators have turned more bullish with the 50-day exponential moving average moving higher and price crossing above it. The MACD has also turned positive, but until SPX moves convincingly above $5,760, the bear case remains in play
Source: Charles Schwab Corporation
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