What Happened Last Week
- Easing Fears: Equities rallied, led by the Mag 7, as tariffs, Powell firing fears, and DOGE-related cuts all eased.
- Positioning Snapback Over: The recent rally occurred on low volume, retail-driven buying; further upside will likely require concrete developments.
- Earnings Uncertainty: Earnings were better than feared, but investor patience is tested by continued uncertainty and stretched valuations.
What We’re Watching This Week
- Tariffs: Officials released a framework for negotiations with 18 of our trading partners, excluding China, over the weekend, and we are watching for more concrete developments.
- Earnings Week Four: ~40% of the S&P 500 reports this week as forward guidance remains our focus.
- Macro Developments: Focus shifts to the labor market, the Treasury’s quarterly refunding announcement, consumer confidence, and global Q1 GDP updates.
Investment Management Team’s Views
The trio of macro concerns—tariffs, Fed independence, and DOGE—eased notably last week, fueling the S&P 500’s highest close since before Liberation Day. The Mag 7 notched their strongest rally since January 2023, although the move occurred on light volume dominated by retail buying in AI favorites, story stocks, and crypto. Bulls hold near-term momentum, but equities face overhead resistance at pre-Liberation Day levels and the 50-day moving average. In our view, the positioning adjustment to this more uncertain environment has run its course, meaning further upside in equities likely requires concrete positive developments, not just further easing of worst-case fears.
The “better than feared” theme continues into earnings season so far. The lack of firm guidance has made reaffirmations the new standard for positive surprises, moderating our view of the health of the reports to this point. Investor patience with vague outlooks is likely to wane, particularly if valuations keep rebounding toward March levels. This week’s earnings, which cover over 40% of the S&P 500 and include four Mag 7 firms, are likely to be overshadowed by any tangible progress in trade talks.
In a jam-packed calendar for market catalysts, trade negotiations remain a key focus. The United States Trade Representative (USTR) recently released a framework targeting 18 trading partners, notably excluding China. Potential positive catalysts include early signs of progress toward agreements with Japan or South Korea, alongside confirmed communication with China. Entering week four of earnings, about 40% of the S&P 500 by market capitalization will report earnings. Our focus is firmly on forward guidance rather than current-quarter performance. On the macro front, with Powell dismissal fears largely gone, market attention shifts to labor market data, the Treasury’s quarterly refunding announcement, consumer confidence, and global GDP reports.
