What Happened Last Week
- Equities: The S&P 500 surged 5.7%, yet frequent trade policy reversals, weak confidence, and a lack of a major valuation discount keep us cautious.
- USD and U.S. Rates: Sharp rise in 10-year yields (+50 bps), dollar weakness, and record gold prices signal waning investor appetite for dollar assets.
- Trump Tariff Pivot: Bond and foreign exchange market volatility, not equities, likely prompted Trump’s recent tariff policy pivot.
What We’re Watching This Week
- Trade Uncertainty: Tariff policy uncertainty persists as various factions jockey for influence in the White House.
- Credit Market: Despite last week’s volatility, the credit channels remain open, keeping the Fed on the sidelines.
- Earnings: Forward-looking guidance from companies is more valuable than backward economic data in this environment; Banks, airlines, AI names, European luxury brands, and healthcare giants all report this week.
Investment Management Team’s Views
The S&P 500 surged 5.7% last week—its biggest weekly gain since November 2023—despite market sentiment feeling far less positive. President Trump’s Wednesday afternoon announcement of a trade policy pivot drove the market. However, this announcement has since undergone three modifications, leaving businesses with no greater clarity than two weeks ago. The weak performance of economically sensitive sectors, such as small caps and energy stocks, reinforced this caution during last week’s strong up tape. Additionally, Friday’s consumer confidence reading—collected after Liberation Day—showed notably weak growth and elevated inflation expectations, prompting us to view today’s early rally with skepticism.
Despite the historic equity volatility highlighted in our Special Report, last week’s movements in the dollar and long-term U.S. Treasury yields were even more concerning. The 10-year yield surged 50 basis points week-over-week, the dollar weakened significantly against major currencies, and gold reached new all-time highs. These are all clear signals of diminished investor appetite for dollar-denominated assets. Notably, it was most likely the bond market turmoil, rather than equity losses, that prompted Trump’s policy reversal last Wednesday. In this volatile and uncertain environment, we will continue to prioritize signals from bond and currency markets over equities.
This week is all about trade news and market function. On trade, one-off deals would be positive, while further aggressive rhetoric from Navarro and Lutnick will weigh on sentiment. Credit markets, though volatile, avoided complete disruption last week, and primary issuance, bank earnings guidance, and Fed commentary will be key indicators going forward. Given that economic data lags in this fluid environment, we’ll be overweighting forward-looking company guidance, especially from banks, consumer-facing firms, and those with global supply chains.
