Market Pulse — Relief Rally Amid Trade Tensions and Earnings Surprises

U.S. equities rebounded sharply this week, buoyed by a softer tone from the White House on trade and monetary policy, as well as strong earnings from key sectors. The S&P 500 climbed 1.8%, the Dow Jones Industrial Average gained 1.2%, and the Nasdaq Composite surged 2.6%, with the tech-heavy index leading the charge thanks to robust performances from semiconductor stocks. 

The rally was sparked by President Trump’s unexpected shift in rhetoric, signaling openness to reducing tariffs on Chinese imports and affirming support for Federal Reserve Chair Jay Powell. This policy pivot eased investor concerns and helped lower Treasury yields, providing a tailwind for equities.  Treasury Secretary Scott Bessent’s acknowledgment that current tariffs are “not sustainable” further fueled optimism for a potential de-escalation in trade tensions.

Despite the positive market movement, underlying economic indicators painted a more cautious picture. The International Monetary Fund (IMF) urged global leaders to resolve trade tensions swiftly, citing the threat they pose to global economic stability.  Additionally, consumer confidence in Europe showed signs of weakening, with expectations of declining business morale in Germany and falling consumer confidence in France and Britain.

Corporate earnings were a mixed bag. General Electric (GE) reported strong earnings and estimated manageable tariff-related costs, resulting in a stock rise. In contrast, RTX Corporation faced a larger-than-expected $850 million in tariff costs, leading to a 10% stock drop.  These divergent outcomes underscore the uneven impact of trade policies across industries.

Looking ahead, several key economic events could influence market sentiment. The April non-farm payrolls report, due on May 2, will provide insight into labor market strength. The Federal Reserve’s policy meeting on May 7 and subsequent commentary may address inflationary effects of tariffs. Additionally, CPI data on May 13 and Core PCE data on May 30 will reveal how tariffs are impacting consumer prices.  We will also be closely watching for developments in trade negotiations, particularly as the 90-day pause on reciprocal tariffs ends on July 9.

While this week’s rally offers a welcome respite, the market remains sensitive to policy shifts and economic data. We will stay vigilant and consider the potential implications of upcoming economic reports and geopolitical developments.

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