What Happened Last Week
- Tariffs in the Courts: A trade court ruled that most of President Trump’s tariffs are illegal, yet he increased levies against steel and aluminum despite the ruling.
- NVDA Earnings: Nvidia’s (NVDA) strong results and upbeat guidance set up the Broadcom (AVGO) report and upcoming tech conferences as the next key tests for the AI theme.
- Trade Still in Focus: China and the U.S. have each accused the other of violating previous trade agreements, with rare earths exports at the center of the disagreement.
What We’re Watching This Week
- Earnings: AVGO and Lululemon (LULU) are the biggest reports of the week, scheduled for release on Thursday afternoon.
- Geopolitical Risk and Trade: Trump plans to speak with Xi Jinping this week regarding escalating trade tensions. Oil prices are rising due to the escalation between Ukraine and Russia.
- Economic Data: Investors will get renewed looks at U.S. labor data and unemployment, as well as U.S. Trade Balance data. The Eurozone CPI is expected to hit the wire this week.
Investment Management Team Views
May ended on a high note as signs of progress on trade negotiations with the EU propelled the S&P 500 to its best monthly gain since November 2023. Price action was the inverse of the prior week, with domestic growth stocks leading and internationals and defensives on the back foot. NVDA’s strong earnings report helped shape last week’s trading, but the stock’s muted reaction suggests that investor expectations have been rising as markets have been in rally mode since the April lows. The back-and-forth churn of market trends is another indicator that the recent rally may be running out of steam. Consumer spending and inflation data released towards the end of the week were in line with expectations, while housing-related data showed continued weakness in housing sector activity, which has been under pressure from rising interest rates.
Last week’s ruling from the little-known U.S. Court of International Trade, which found that President Trump’s Liberation Day tariffs were illegal, was an unexpected development that appears positive at first glance. Indeed, equities initially rallied sharply on this news, only to fade by the end of the week as investors considered the other avenues available to implement Trump’s tariff agenda. The weekend news of a higher rate on steel and aluminum tariffs clearly indicates to us that this risk is not going away and that uncertainty remains enormous. The President’s actions in response to this setback for his agenda will be informative as to what the potential endgame may be after these months of chaotic policymaking.
Economic reports on the U.S. labor market and business surveys are the highlight for the week ahead. Continued resilience in job creation would be a bullish sign that the all-important labor market is handling this uncertainty well. The European Central Bank is expected to lower interest rates at its meeting on Thursday. We are watching for any clues on how its future policy will evolve in the context of very strong equity market performance in Europe this year. Lastly, another off-cycle earnings release, this time from AVGO, will be another key test for the AI theme.
