What a Week for Stocks!
It was a strong week for the stock market, with all the major indexes finishing higher. After the U.S. and China reached a trade agreement last weekend, agreeing to cut tariffs for 90 days and continue negotiations, stocks jumped on Monday and didn’t slow down all week.
In fact, the S&P 500 rose every single day last week and has now been up in 16 of the last 19 trading days. That’s impressive!
This recent U.S.-China deal follows another trade agreement the U.S. made with the U.K. the week before, leaving investors apparently hopeful that more positive trade developments are on the way.
Also helping provide a boost, inflation data showed signs of cooling. Both consumer and wholesale prices came in lower than expected, which supports the case for the Federal Reserve to consider cutting interest rates in the near future.
On the downside, a report on consumer confidence (how people feel about the economy) showed a slight dip, and inflation expectations for the coming year ticked up. But many analysts seem to believe that report may already be outdated, since its data was collected before the latest trade deal news.
All in all, the S&P 500 gained over 5% for the week and is back in positive territory for the year by a little over 1%. Investors seem to be feeling a little more optimistic that the economy can avoid a hard downturn now that progress is being made on the tariff front.
The yield on the 10-year U.S. Treasury, last week, briefly climbed to its highest level since early February. This rise was apparently largely due to progress on a potential extension of Republican tax cuts and concerns about government spending. The U.S. dollar also edged higher and economically sensitive oil prices rose as well while gold dropped as easing trade tensions reduced demand for safe haven assets. Industrial metals seemed to have missed the risk on rally but that was largely due to supply concerns.
Source: stockcharts.com
The Week Ahead:
It’s a light week for economic data with the key report being Thursday’s May Flash PMI (Purchasing Managers’ Index) numbers, which provides an early look at business activity for this month. Strong results, especially in services, would be a positive sign that the economy is holding up, despite trade and policy uncertainty.Besides that, we have some Federal Reserve board members speaking Monday and Tuesday along with the regular weekly employment numbers on Thursday.
I’d expect trading volumes to be light heading into the holiday weekend as traders’ focus shifts towards The Hamptons and spending time on the beaches.
Tying it all together:
Investor sentiment has taken a welcome turn for the better as encouraging progress on tariffs and the U.S.-China trade front, our most important trading relationship, suggests we may finally be moving past the threat of a full-blown trade war.
Despite recent market volatility, the underlying economic picture remains resilient. Key data like job growth, consumer spending, corporate earnings, and inflation have remained strong, reinforcing the idea that the economy continues to rest on solid ground. These hard numbers reflect real activity and have seemingly helped markets recover from recent turbulence.
While forward-looking indicators like business surveys and consumer sentiment have shown some weakness, they’re often influenced by short-term uncertainty. As the broader outlook improves, we may see confidence rebound. However, with markets approaching recent highs, valuations are likely to come back into focus. Continued strength in earnings and supportive corporate guidance will be key to justifying current prices.
Going forward, staying disciplined, aligning portfolios with one’s risk tolerance, and focusing on fundamentals will be essential for navigating what remains an evolving and potentially opportunistic environment.
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