Trade Jitters Keep Stocks in Check
Markets ended slightly lower last week, as early concerns about trade tensions were balanced out by some positive developments later in the week. The S&P 500 slipped 0.45%, bringing its year-to-date loss to 3.34%. The Dow and Nasdaq also dipped, while small- and mid-cap stocks managed to edge higher.
Stocks got off to a rough start after President Trump floated the idea of new tariffs on foreign-made films, which reignited trade worries. Weak economic data from China and a bigger-than-expected U.S. trade deficit added pressure, especially for tech names. But things turned around midweek following a solid ISM Services PMI release when the Federal Reserve left interest rates unchanged and hinted at potential cuts later this year. That, combined with signs of easing trade tensions, including a new deal with the U.K. and news of upcoming talks with China, helped lift investor sentiment.
Commodities ended the week mostly higher, led by a strong rebound in oil prices. Gold also rose, while copper lagged as trade-war concerns eased later in the week. The U.S. Dollar strengthened, supported by better-than-expected economic data and optimism around trade deals. The 10-year Treasury yield also edged higher to close the week near 4.30% as investors reacted to improving economic indicators.
Source: stockcharts.com
The Week Ahead:
***Late Morning Update — The US and China struck a temporary deal halting reciprocal tariffs for 90 days and the futures markets are screaming higher as of this writing. This may well be the key driver of this week’s trade.
This week’s key economic focus is Tuesday’s Consumer Price Index (CPI) report, which will give investors the latest read on inflation. While some unofficial indicators have hinted at rising prices, that hasn’t yet shown up clearly in the data. If CPI comes in as expected — or lower — it could ease inflation concerns and be a modest positive for stocks by pushing back against stagflation worries. On Thursday, attention shifts to growth data, especially retail sales. March numbers were strong, likely boosted by consumers buying ahead of potential tariffs. If April shows a slowdown, that would make sense; but if spending remains solid, it could suggest the consumer is still in good shape and the broader economy remains resilient.
Tying it all together:
Markets have been caught in a push-pull dynamic lately, driven by the tension between solid economic fundamentals and growing concerns about the future. On the one hand, the hard economic data, things like job numbers, consumer spending, and corporate earnings, have largely held up, suggesting the economy is still on stable footing. These reports are concrete and based on past activity, which helps explain why markets have managed to rebound, despite the turbulence caused by recent headwinds in the first quarter. However, they’re also backward-looking, offering limited insight into what’s coming next.
In contrast, forward-looking indicators such as PMIs, business surveys, and consumer sentiment readings have been notably weaker. These high-frequency data points reflect expectations and shifts in confidence more quickly, but they can also be clouded by negative headlines and uncertainty — particularly around trade policy, inflation, and global growth.
This disconnect has helped revive stagflation concerns, where slowing growth and stubborn inflation co-exist, making it harder for central banks to respond with rate cuts.
While the economy’s current footing appears stable, weakening sentiment and survey-based data suggest that cracks could be forming beneath the surface. This divergence has created a layer of uncertainty for investors, who are now closely watching upcoming reports like CPI and retail sales for clearer signals, both to assess the health of the economy and to support valuations that remain stretched by historical standards.
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