Written by Craig Farley, Chief Investment Officer, TEAM PLC
The bellwether S&P 500 large cap index rallied for 7 straight days into month-end to erase all losses that were chalked up following Trump’s ‘Liberation Day’ announcement, before easing back in Monday’s trading session. Technology and small cap equities were also well-bid. The marginal buyer has been retail investors embracing a ‘buy the dip’ mindset, deploying a staggering 40 billion dollars into US ETFs (exchange traded funds) in April.
American domestic and foreign policy remains front and centre, with ongoing chaos in the White House creating wild gyrations in sentiment and positioning. Pro-business President Trump’s first 100 days in office is officially the worst for the stock market since the Richard Nixon presidency back in 1973. Ouch. Whilst equity and credit risk gauges have, pleasingly, dropped dramatically of late, the VIX index, Wall Street’s barometer of fear and anxiety, remains elevated.
News releases during the week were viewed as supportive for risk assets, adding fuel to the V-shaped recovery we have seen since April 9. The Donald continued his steady walk back from his recent aggressive rhetoric directed at Fed officials, whilst softening the country’s position on the so-called ‘reciprocal tariffs’ that were announced to the world on Liberation Day (April 2).
This week, American automakers that rely on imported components and parts, enjoyed a moment in the sun following an announcement that they are set to enjoy a partial exemption. Separately, the US and Ukraine also (finally) reached a deal over access to Ukraine’s valuable natural resources, which will grant the US privileged access to new investment projects to develop aluminium, graphite, and natural gas reserves.
With betting markets now placing greater than 60% odds on a US recession in 2025, the lens of the market has turned to a) macro data, and b) corporate earnings, for evidence that Trump’s tariff torpedoes are biting into the real economy. The latest US April payrolls report, published Friday, revealed a surprisingly resilient labour market, with non-farm payrolls rising 177k alongside an unchanged unemployment rate of 4.2%. Nothing to see here.
Analysts now expect approximately +8% aggregate earnings growth for the S&P in 2025 against +12% at the beginning of this year. A darkening mood and strong rhetoric amongst many CEO’s during conference calls so far suggests the ongoing tariff tit-for-tat is creating considerable uncertainty around margin sustainability, business investment, and strategic planning. Yet, on balance, earnings have remained robust, with ‘hyperscalers’ Microsoft and Amazon comforting investors this week over the strength of their operational performance and capital expenditure plans, particularly in the AI space.
With that said, some insight on the potential path ahead for businesses, with Amazon sellers reporting that they have raised prices nearly 30% on roughly 1,000 products (due to tariffs). Some third-party sellers are also scaling back, or skipping Prime day 2025, to protect margins, risking fewer discounts, lower advertising revenue, and reduced selection during the key sales event.
Echoing this sentiment, global shipping and logistics company UPS has said it will cut 20,000 jobs this year and close more than 70 buildings as it seeks to reduce costs and prepare for a halving in package volume from Amazon, its biggest customer.
Gold finished marginally lower again this week, unsurprising given the ‘risk-on’ mindset adopted by investors. As the yellow metal pays no yield, and often carries storage costs, it can be viewed as an opportunity cost when stock markets are rising. China and fast-moving hedge funds have also been reportedly selling in size following the strong rally we have seen so far this year.
Looking ahead, investors will be hoping that an old investment axiom, ‘sell in May and go away’ continues its recent poor performance prediction. Popularised by the Stock Trader’s Almanac, the concept infers that switching from stocks (represented by the Dow Jones Industrial Average) into fixed-income investments over the ‘summer period’ from May to October would have ‘produced reliable returns with reduced risk since 1950’. However, flying in the face of these statistics, the S&P index has produced positive returns for May in nine out the past ten years. Go figure.
