Market Update – 5/2/2025

Markets charted a volatile course this week as investors digested conflicting signals from economic data, corporate earnings, and evolving policy developments. While equities have rebounded sharply from the April 7th low, that momentum is now meeting resistance as macroeconomic and policy uncertainties come back into focus.

Economic Signals: Slowing Growth, Sticky Prices
Stagflation concerns reemerged following a -0.3% contraction in Q1 real GDP—the first decline since Q1 2022. However, much of the pullback was driven by a tariff-related surge in imports and inventory accumulation. Consumer spending remained positive, though it cooled to just 1.8%, the slowest pace since Q2 2023.

At the same time, inflation pressures persisted. The GDP Price Deflator rose 3.7%, pointing to continued price stickiness even amid slower growth. ** April’s ISM Manufacturing Index echoed this theme: New Orders, Production and Employment declined further into contraction territory, while Prices Paid accelerated.

Labor market data added to the mixed picture. The ADP report showed a modest 62,000 gain in private-sector payrolls. Meanwhile, JOLTs job openings dropped to a six-month low, suggesting some easing in labor demand. Initial unemployment claims hit a two-month high, and continuing claims reached their highest level since November 2021. On the inflation front, the Core PCE Price Index—the Fed’s preferred measure—was unchanged from the prior month, its lowest reading since April 2020.

Earnings Resilience vs. Weak Forward Guidance
Corporate earnings have highlighted the economy’s underlying resilience, with over 70% of S&P 500 companies beating analyst estimates. However, forward guidance remains weak. Only 20% of companies have received upward earnings revisions—levels typically seen during major downturns like the COVID crisis or 2008.

This divergence has made investors more cautious, especially with the S&P 500’s forward P/E multiple near 19.5x—just below the 5-year average (19.9x), but above the 10-year norm (18.3x).****

Trade Policy: Strategic Uncertainty by Design
Adding to the market’s uncertainty, Treasury Secretary Scott Bessent characterized the administration’s trade stance as one of “strategic uncertainty.” While the U.S. appears close to agreements with countries like India and Japan—and Commerce Secretary Howard Lutnick indicated a finalized deal with an unnamed nation—no specifics have been disclosed. This lack of clarity has heightened market sensitivity to trade headlines, especially as tariffs and policy friction begin to visibly affect GDP and corporate outlooks.

All Eyes on the Fed
Looking ahead, the upcoming FOMC meeting takes center stage. A rate cut in May remains unlikely, but investors will closely analyze Chair Powell’s comments for any shift in forward guidance. With economic momentum slowing and inflation proving more persistent, the Fed’s next steps remain highly data-dependent—and likely market-moving.

Earnings
Earnings releases from Meta and Microsoft fueled the market rally on Thursday. Amazon reported an earnings beat, but issued light guidance. Apple’s earnings exceeded expectations, but analysts wanted more.

China Trade Talks
Positive news Friday on China Trade Talks that the U.S. and China could soon find themselves at the trade negotiating table. A spokesperson for China’s commerce ministry said senior U.S. officials have recently reached out “through relevant parties multiple times” and that China is evaluating the possibility of holding talks.

Berkshire Hathaway Annual Meeting
Warren Buffett has been mum about tariffs and the recent market turmoil but will finally speak his mind when the 94-year-old investment legend kicks off Berkshire Hathaway’s annual shareholder meeting on Saturday.

Jobs Report
Job growth was stronger than expected in April despite worries over the impact of President Donald Trump’s blanket tariffs against U.S. trading partners. Nonfarm payrolls increased a seasonally adjusted 177,000 for the month, slightly below the downwardly revised 185,000 in March but above the Dow Jones estimate for 133,000. The unemployment rate, however, held at 4.2%, as expected, indicating that the labor market is holding relatively stable.

While equities have staged an impressive recovery since early April, we expect continued near-term volatility amid mixed earnings signals, softening macro trends, and evolving Fed expectations. With “strategic uncertainty” now an explicit policy tool, headline risk—particularly around trade—will likely remain elevated.

We continue to monitor developments closely as markets reassess both economic and policy trajectories.

Sources
** CNBC, Seeking Alpha
**** Bloomberg, Yahoo Finance