Weekly Market Update – May 9, 2025

Quick Takes

• BREAKING: In the early hours of Monday, the U.S. and China announced preliminary details on an agreement to temporarily cut tariffs for a 90-day period while further negotiations are established. U.S. tariffs on Chinese goods will be cut from 145% to 30%; China tariffs on U.S. imports will be cut from 125% to 10%. The U.S. 30% includes the flat 10% tariffs on all goods plus the 20% fentanyl-related tariff. Uncertainty remains on a broader, longer lasting trade deal but markets were up 2-3% just before the opening Monday morning.
• The major indexes all finished last week roughly flat, with large cap stocks slightly down and small- and mid-cap stocks slightly higher. The S&P 500 Index closed the week with a modest loss of -0.5%, while the small-cap Russell 2000 Index was up +0.1%.
• Like U.S. stocks, overseas equities were mixed and relatively flat. The MSCI EAFE Index (developed market non-U.S. stocks) was down -0.2% after four weeks of gains. The MSCI Emerging Markets Index was up +0.5%, marking a four-week win streak. 
• The Fed announced it would be holding the fed funds target rate steady in the range of 4.25% to 4.50%, and policymakers noted that “economic activity has continued to expand at a solid pace.” But they cautioned that “uncertainty about the economic outlook has increased further” and “the risks of higher unemployment and higher inflation have risen.”

Source: Bloomberg. Data as of May 9, 2025.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Stocks little changed amid hopes for U.S. – China trade talks

The major indexes all finished last week roughly flat, with large cap stocks slightly down and small- and mid-cap stocks slightly higher. The S&P 500 Index closed the week with a modest loss of -0.5%, following heady gains of +2.9% and +4.6% the prior two weeks. Stocks were lower to start the week with the S&P 500 snapping a nine-day winning streak in a fairly quiet trading on Monday. But promising progress on the tariff front helped markets recover on Wednesday and Thursday. Reports that U.S. and Chinese officials meeting in Switzerland over the weekend for trade discussions helped lift stocks on Wednesday as investors hoped for broader negotiations and tariff de-escalation. Stocks continued to gain through Thursday on the announcement that the U.S. and U.K. had established a framework for the first new trade deal since the Trump administration’s reciprocal tariffs were unveiled on April 2. Stocks finished Friday marginally lower on relatively light volume with investors waiting to digest news out of the U.S. – China trade talks over the weekend. 

Small- and mid-cap indexes led the way last week, with the Russell Mid Cap Index advancing +0.8% and the small-cap Russell 2000 Index was up +0.1%. It was the fifth consecutive week of gains for the Russell 2000, its longest weekly winning streak since it had six consecutive weekly gains in November-December 2023. 

Like U.S. stocks, overseas equities were mixed and relatively flat. The MSCI EAFE Index (developed market non-U.S. stocks) was down -0.2% after four weeks of gains. Stocks in the U.K., Germany, Italy, and Japan were all up for the week. The MSCI Emerging Markets Index was up +0.5%, marking a four-week win streak. Chinese stocks rallied on the U.S. – China trade talks announcement and got an unexpected policy boost by the central bank. On Wednesday, the People’s Bank of China (PBOC) reduced its seven-day reverse repurchase rate to 1.4% from 1.5% and cut its reserve requirement ratio by half a percentage point, a move that will release roughly RMB 1 trillion in long-term liquidity in the economy.

The yields on U.S. Treasurys were modestly higher for the week. The yield on the 10-year UST and 2-year UST were both up +7 basis points to finish the week at 4.38% and 3.89%, respectively. The Bloomberg U.S. Aggregate Bond Index slipped -0.2% for the week, following the prior week’s -0.3% dip. Non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, were down -0.7% following a +0.2% gain the previous week. 

Outside of tariff news, the major stories moving markets during the week trended around the Federal Reserve (the Fed) and another week of corporate earnings reports. The highlight of the week’s economic calendar arguably came on Wednesday, as the Fed concluded its monetary policy meeting and announced it would be holding the fed funds target rate steady in the range of 4.25% to 4.50%, as was widely expected. In the Fed’s post-meeting statement, policymakers noted that “economic activity has continued to expand at a solid pace.” However, they cautioned that “uncertainty about the economic outlook has increased further” and “the risks of higher unemployment and higher inflation have risen.”

Earnings season is largely finished, with major retailers among the few leftovers, with notable names like Under Armour, On Holdings, Walmart, and Alibaba reporting this week. Generally speaking, earnings season has been solid with about 78% of S&P 500 companies having reported better-than-expected earnings, according to FactSet. That’s just above the five-year average of 77%. Of course, this earnings season, investors were closely watching what companies said about their outlooks given all the tariff turbulence. And the news was better than expected on that front as well with FactSet noting that the percentage of S&P 500 companies offering better-than-expected outlooks for the current quarter was also higher than average (of 75 forecasts, 45% were positive, versus a five-year average of 43%.) 

The Week Ahead

With another week of relatively light economic reports, the focus for markets will remain on trade. Markets will be watching closely for some positive news out of trade talks being held between U.S. and Chinese officials in Switzerland. Still there are some noteworthy events to start the week until the calendar gets busy on Thursday. On Monday we get a read on the Federal Budget and then on Tuesday we the NFIB reports Small Business Optimism, and the Bureau of Labor Statistics releases the April Consumer Price Index (CPI). This is the first inflation-related data release that might capture any effects of the tariffs implemented by the White House after April 2nd. Wednesday brings the usual weekly MBA Mortgage Applications and then the Producer Price Index (PPI) for a look at wholesale inflation. Thursday will be busy with weekly jobless claims, regional Fed manufacturing surveys from NY and Philadelphia, the advance read on Retail Sales, Industrial Production, and the NAHB Housing Market Index. On Friday the University of Michigan releases its Consumer Sentiment survey, plus Housing Starts & Building Permits, as well as Import & Export Prices.

More than 450 of the S&P 500 companies have reported first-quarter results, with nearly 80% beating consensus earnings-per-share estimates and roughly 60% besting revenue projections. On the calendar for next week are Fox and Simon Property Group, releasing results on Monday. Cisco Systems announces its earnings on Wednesday, and Applied Materials and consumer bellwether Walmart report on Thursday.

Investors will also be following remarks from Federal Reserve Chairman Jerome Powell at a conference in Washington, D.C. after the central bank maintained its key policy rate and warned of a potential stagflation risk last week.

Chart of the Week

The ISM Services PMI increased to 51.6% in April, after falling to just 50.8% in March. That was well above Wall Street consensus expectations for a further decline to 50.2%. Service-oriented companies, such as restaurants and retailers, employ the majority of Americans. The New Orders component increased to 52.3% from 50.4% and the Employment component improved to 49.0% from 46.2%. Reading above the 50.0% threshold indicates economic expansion. The biggest downside to the April Services PMI report was the Prices Paid component, which jumped to 65.1% from 60.9%. That’s the highest level since January 2023 and a clear warning that inflation pressures may be re-emerging.

Services sector, the main engine of the U.S. economy, strengthened in April

The ISM Services PMI rebounded for a sharp drop in March

Source: Institute for Supply Management (ISM), Trading Economics.

Did You Know?

DON’T CALL IT A COMEBACK – The S&P 500 was down -13.8% month-to-date at its intraday low on April 8, but it rallied +15.2% through month’s end to finish April down just -0.76%. April was the closest the index has ever come to fully erasing an intra-month drop of more than -10%, going back to 1928. (Source: Bespoke)

ROBOT REVOLUTION – Morgan Stanley estimates $4.7 trillion in global revenues from humanoid robots by 2050, with roughly 1 billion units sold by then. Goldman Sachs projects that 1.4 million humanoid robots will be shipped annually by 2035, and Citi sees a $7 trillion market for humanoids in the next 25 years. (Source: CNBC, Yahoo!Finance)

SLEEPY SUMMERS – Since 1928, the S&P 500 has averaged a modest +2.3% gain from May to October compared to a much stronger +5.2% average gain from November to April. This disparity underpins the classic Wall Street adage, “sell in May and go away.” (Source: Bespoke)

This Week in History

BUY THE (CENTRAL) BANK – On May 5, 1850, the National Bank of Belgium was founded as a public limited-liability company.  Its shares are still publicly traded—making it one of the world’s only central banks you can invest in. (Source: The Wall Street Journal)

Economic Review

• Unlike the competing ISM Services Index, the S&P Global U.S. Services PMI fell to 50.8 in April, noticeably lower than the 54.4 reading in March. That is still in expansion mode but was the lowest level since November 2023. An uncertain trading environment had an especially notable impact on foreign demand, with New Business from abroad slumping in April to the greatest degree since November 2022. Uncertainty around trade policy also hit Business Confidence of service providers in April. Overall, Sentiment was at its lowest level for two-and-a-half years and amongst the weakest since the height of the pandemic in 2020. Input Costs continued to rise at an elevated pace during April, although the rate of inflation eased considerably from March’s one-and-a-half year high to its weakest of 2025 so far. Despite evidence of slowing demand growth, service providers chose to increase their own Selling Prices to a stronger degree in April.
• According to the U.S. Bureau of Economic Analysis, the U.S. Trade Deficit widened +14% in March to a record -$140.5 billion from -123.2 billion the prior month (revised from -$122.7 billion). That was a larger deficit than the -$137.2 billion expected. Smaller trade deficits help contribute to economic growth, while larger deficits inhibit growth. The widening was the result of March Exports being just $0.5 billion more than February exports while March Imports were $17.8 billion more than February imports as companies rushed to bring in goods ahead of tariffs. The Imports detracted sharply for Q1 GDP but at some point, the tide will shift, and imports will likely fall off abruptly.
• Outstanding U.S. Consumer Credit increased +$10.172 billion in March, above expectations for a +$9.387 billion increase, and the prior month’s -$0.614 billion drop (revised from the initially reported -$0.810 billion). That amounts to a -2.4% annual growth rate for the month, up from the -0.2% annualized growth rate the prior month. Growth for revolving credit, such as credit cards, was up +1.7%, up from the prior month’s -0.1% dip. Nonrevolving credit, which tends to be much less volatile than revolving credit and includes auto as well as school loans, rose +2.7% following the prior month’s -0.3% dip. The data from the Federal Reserve is not adjusted for inflation and does not include mortgage loans, which is the largest category of household debt. The bottom line is that March saw a big rebound in both revolving and non-revolving credit from the prior month’s flat levels.
• Weekly MBA Mortgage Applications rose +11.0% for the week ended May 2 following a -4.2% decline the prior week. The Purchase Index was up +11.1% after dropping -4.4% the prior week. The Refinance Index rose +11.1% as well after falling -3.7% the prior week. The average 30-Year Mortgage Rate slipped to 6.84% from 6.89% the prior week.
• Weekly Initial Jobless Claims fell -13,000 to 228,000 for the week ended May 2, better than expectations for 230,000. The prior week was unrevised. The number of people already collecting unemployment claims (i.e., Continuing Claims) fell by -29,000 to 1,879,000 in the week ended April 25, better than expectations for 1,895,000 claims. Last week’s reading was revised lower from 1,916,000 to 1,908,000.

Asset Class Performance

Source: Bloomberg.
Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 24% US Bonds, 10% International Bonds, 6% High Yield Bonds, 13.8% Large Growth, 13.8% Large Value, 3.6% Mid Growth, 3.6% Mid Value, 1.2% Small Growth, 1.2% Small Value, 16.8% International Stock, 4.2% Emerging Markets, 1.8% Real Estate.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.