Weekly Investment Perspective

U.S. equities managed to rally back sharply last week and recoup some of the year-to-date losses as the White House signaled potential to de-escalate in the trade war against China, and President Trump walked back his comments about the potential to fire Fed Chairman Jerome Powell. Despite the relief rally, many investors remain on cautious footing as the economic data begins to show the strains of current trade conditions. For the week, the S&P 500 surged 4.6% to pare its year-to-date losses back to -5.7%, and the Dow Jones gained 2.5%. The technology sector was a notable support last week, powering the tech-laden Nasdaq Composite to a 6.7% gain. Meanwhile, reduced concern about the central bank’s independence helped drive a reprieve in bond markets as interest rates eased lower with the 10-year U.S. Treasury yield falling to 4.26% from as high as 4.5% mid-April.

Recent trade-related data has started to underscore the impact of the new tariffs as signs of supply chain disruptions are starting to emerge. Scheduled shipments to major U.S. ports have fallen sharply with the Port of Los Angeles seeing a decline in arrivals this week of roughly one-third compared to the previous year, and container bookings from China are down 45%. Many U.S. businesses made moves to stockpile inventory ahead of tariffs late last year and early this year, but those import stockpiles may be depleted within 2 to 3 months, according to Goldman Sachs, and could run out faster if consumers also look to start stockpiling certain goods. The economic strain from these disruptions would likely be felt first in industries like trucking, logistics, and retail. Stocks in these industries have notably underperformed the market so far this year, and investors will be watching labor demand trends closely in these areas in coming weeks.

Consumer sentiment is also showing more signs of strain. Friday’s update of the University of Michigan's consumer sentiment survey reported that the consumer expectations index fell 32% from January to April, marking the steepest three-month decline since 1990. Future income prospects and concerns of rising inflation were among the key headwinds cited in the more pessimistic outlook.

In the week ahead, corporate earnings will be in the spotlight with one of the busiest schedules of upcoming reporters on the docket, including Amazon, Apple, Meta Platforms, and Microsoft. Last week’s earnings from other tech heavyweights, including Google-parent Alphabet and Tesla, were well-received as their management teams remained constructive on the outlook and signaled continued intentions to invest heavily on artificial intelligence initiatives, which remains a key source of support to the U.S. market.

Alongside earnings season, there will be a flurry of high-profile economic data points this week including the first estimate of U.S. GDP for the first quarter on Wednesday and the April jobs report on Friday. Economists expect that payrolls grew at a modest clip in April with 125k net new jobs added to the economy during the month, and unemployment is expected to remain steady at 4.2% as weekly jobless claims remain contained to date.

While the markets have shown some encouraging resilience, the underlying uncertainties persist and equity market turbulence may remain elevated near-term as hard economic data starts to show signs of moderation. The recent rebound in stock prices may be fragile with firm progress on trade negotiations needed to bolster investor confidence.

2025 The Long View | First Merchants Bank