Market Update: May 5, 2025
Economic data for the week included U.S. GDP growth for Q1 coming in negative, as well as weaker manufacturing, construction spending, and consumer sentiment. On the positive side, home prices continued to rise, albeit at a slower rate, while the employment situation report came in a bit better than expected, still showing growth.
Equities saw gains globally, buoyed by positive earnings and hopes for U.S. trade deals. Bonds fell back along with higher interest rates and a stronger U.S. dollar. Commodities fell back along with weaker crude oil demand expectations.
U.S. stocks rose for the second straight week, with nine straight positive days. However, the S&P 500 price index is still down -7% from the Feb. 19 peak. By sector, industrials, technology, and communications saw the strongest gains, over 4%, while energy was the only sector in decline, with sentiment tied to falling crude oil prices, and minimal gains for defensive consumer staples and health care. Real estate also gained over 3%, despite higher interest rates.
By Tuesday, comments from the administration that U.S. automakers would be given tariff relief helped sentiment, along with comments pointing to progress in major trade negotiations, although no further key announcements were made. Strong earnings reports from Microsoft and Meta helped the overall mood, although Apple and Amazon did not, with the latter assumed to be further negatively impacted by tariff effects. Overall, per FactSet, with over 70% of companies now having reported Q1 earnings, the blended EPS growth rate is running at 12.8% year-over-year, with a similar 76% of firms reporting an earnings surprise, well above expectations from March 31. Additionally, nearly a quarter of the reporting firms mentioned ‘recession’ during their calls, versus just a handful earlier in the year. Of that total earnings growth figure for Q1, companies with less than 50% of revenues from the U.S. saw growth of 14.9%, while companies with more than 50% revenue from the U.S. grew at 11.8%. For Q2, S&P earnings growth expectations still call for 5.7%, which is sharply lower than Q1, but just a shade below the long-term average. Earnings growth for 2025 as a whole is estimated at 9.5%, while 2026 stands at an even more robust 11.1%. Of course, the impact of tariffs and uncertainty surrounding policy, as well as any recession, could alter these estimates in coming weeks and months.
Foreign stocks also experienced gains, due to signs of stronger manufacturing and economic performance abroad as well as some hopes for tariff relief. In fact, eurozone GDP in Q1 improved a few tenths to 0.4%, helped by the periphery of Ireland, Spain, and Italy, while Germany and France saw weaker, but still-positive growth. Emerging markets fared similarly to developed, with the exception of strong returns in Taiwan, which tend to be correlated to the global technology sector.
Bonds fell back as U.S. Treasury interest rates ticked higher, with governments faring a bit better than investment-grade corporates. However, high yield and floating rate bank loans earned positive returns. Foreign bonds were held back by a stronger U.S. dollar last week.
Commodities retreated last week, with a stronger dollar along with declines in energy, agriculture, and precious metals. Crude oil fell by over -7% last week to $59/barrel, due to continued concerns over weakening global demand as U.S. tariffs wear on with little progress, coupled with ample supply as OPEC+ was expected to announce another hike to production limits. This was offset by a 17% rise in natural gas prices, with some warmer weather expected, which raises air conditioning demand.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.