05/05/2025 Market Strategy
Progress Not Perfection
Given the Broad Array of Negotiations in Washington, DC, Uncertainty Could Persist
Key Takeaways
- With 358 or 72% of the firms in the S&P 500 index having reported, first quarter results are higher than forecast. Profits in Q1 are up 12.6% from a year earlier on 3.9% revenue growth. Prior to the start of the quarter, Bloomberg’s bottom-up estimates put expected earnings growth at 6.8%.
- Seven sectors are reporting positive growth, with five at double-digits, while four are reporting profit declines, with two at double-digit rates.
- Investors will again be focused on Q1 earnings as 93 firms are due to report this week; another 11 are scheduled the week after. This week also features the Fed’s FOMC rate decision on Wednesday. No change in rates is expected.
- Last week’s economic data showed hiring remained resilient in April while manufacturing production in the ISM report fell sharply. The PCE deflator for April showed inflation tame in the month. .
Last week saw the S&P 500 move higher for a third week of the last five weeks as Q1 S&P 500 earnings continued to show strength and positive surprises. The April jobs numbers nicely beat economist expectations and some tweaks to tariff policy by President Trump and reassuring comments by Treasury Secretary Bessent in interviews with the press lessened what had been contentious levels of high anxiety among some denizens of the market.
By Friday’s close the Dow Jones Industrials, S&P 500, and the Nasdaq Composite had posted respected gains on the week of 3.0%, 2.9%, 3.4%. On a year-to-date basis these same indices as of last Friday showed respective losses whittled down to 2.9%, 3.3%, and 6.9% providing evidence of some relative strength in the recent rallies that helped reduce earlier losses.
Last week’s stateside stock market rally was closely tracked in US dollar terms by the MSCI EAFE (developed international markets ex-US and Canada) and the MSCI Emerging Markets Indexes on signs of some relief from tariff worries.
Bond prices moved lower and yields edged higher last week on evidence provided by the April jobs report that the economy was in better stead than many had thought providing less chance that the Fed will cut rates as many times as some would like.
Oil prices fell further last week as production levels around the world remain high even as concerns about global growth remain in consideration of tariff risks and consumer sentiment
Where Are We Now?
This week ahead should find investors closely following results from the 93 companies in the S&P 500 scheduled to report along with a calendar of stateside economic data that includes updates on the US services sector, the Federal Reserve’s FOMC meeting rate decision at midweek and on Thursday productivity data, unit labor costs, initial jobless claims, and continuing unemployment claims.
Of course any developments pertaining to tariffs and any progress tied to the ongoing negotiations will be of importance to the direction of the markets this week.
With the market having regained some good part of what it had lost from the peak level reached by the S&P 500 on February 19 through the recent low on April 8 (an 18.9% decline), the 14.1% rally from the low through last Friday is likely to be tracked closely by market participants for any clues to what could sustain said rally or test it.
We remain positive on equities. We persist to suggesting that investors practice diversification and patience with an emphasis on diversification and quality in portfolio structures. Looking for “babies that get thrown out with the bathwater” rather than broadly “buying the dips” remains in our view a better approach to take with levels of uncertainty still relatively high.
Time in the market rather than trying to time the market looks to us a preferred approach for intermediate and longer-term investors to practice.
It remains for now a work out market with a positive tilt in our view.
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