Michael Reinking:
Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Every week we are here to keep you up to date on the key trends and events driving global markets. First and foremost, I wanted to thank Jay Woods and my colleague Eric Criscuolo for filling in as I was on the road. Now we are recording midday on Thursday, so let's dive into this week's Market Storylines. Now, over the last couple of weeks after the initial shocks of Liberation Day and the subsequent relief after the 90-day tariff reprieve, markets have been in the process of recalibration and repair. Now, as has been the case for the last three months and potentially for the next three years, there continues to be quite a bit of headline volatility. Now, last week, the tone around tariffs and trade began to soften, and some of the focus shifted to the start of earnings.
It was a mixed week for U.S. markets with the S&P 500 falling one and a half percent driven by continued weakness for the mega-cap tech stocks while action beneath the surface was a bit better with the equal weight small and mid cap indices trading modestly higher while global markets outperformed. However, a new concern was added to the mix as Chair Powell found himself in the crosshairs of President Trump who made it clear he wants rates lower. Now, while markets were closed on Friday, there was press reporting that the administration was studying the possible removal of the chairman with comments from the director of the NEC, Kevin Hassett adding some fuel to the fire. Now, coming out of the long weekend, while many global markets were still closed for holiday and many trading desks were not fully manned, U.S. assets came under pressure with Fed independence drawn into question.
U.S. dollar index moved to the lowest level since 2022 as capital moved into other safe haven currencies like the yen and the Swiss franc and continued to flow into gold. Now, treasury yields moved higher, reversing much of last week's pullback and U.S. equities came under pressure. Now at the lows, the S&P 500 tested 5,100 which was the low on the day following the tariff pause surge. Most major indices ended the day down around 2%, but closed off of the lows. Now Tuesday markets open modestly higher as there were some reasonably positive comments about India's trade talks with Vice President Vance's meeting, providing a roadmap for negotiations and extended to the upside after Treasury Secretary Bessent suggested there could be a de-escalation with China. Now, this did kick off a bit of an unwind of the safe haven trades that I just discussed, helping the U.S. dollar bounce modestly while gold reversed over 3.5% after briefly breaking above 3,500.
However, away from the macro headlines, it was a notable day as earnings season began to broaden out from the financials, and not only were the Q1 numbers pretty solid, the guidance and commentary provided by management teams was better than feared. Now, markets recouped pretty much all of Monday's losses, and shortly after the close, the president took to the airwaves saying that he was not looking to remove the chairman, though he'd still like rates lower and also softened his tone on China. Now this sent futures sharply higher. Now, yesterday there was another round of pretty solid earnings reports. The global flash PMIs overnight didn't show weakness particularly in the manufacturing that you'd expect given the current environment. Now, the U.S. manufacturing PMIs were also slightly better than expected. Those services fell while the prices components continued to move higher, which did cause the Treasury bid to fade.
Now, equities extended after the open following a Wall Street Journal report suggesting the administration could dial back China tariffs, and shortly thereafter, Treasury Secretary Bessent spoke at the IIF meetings discussing the administration's agenda to rebalance global trade. Now, China was highlighted throughout that speech with the Treasury Secretary saying their economic model needs to change away from export overcapacity to support domestic demand. However, his most notable line was America first does not mean America alone. To the contrary, it is a call for deeper collaboration and mutual respect amongst trade partners. Now, this was a much softer tone than the one that was delivered in the Rose Garden a few weeks ago.
Now, equities retested the high after the tariff reprieve between 5,450 and 5,500 and just below the level we broke down from following Liberation Day. We did fade a bit in the back half of the day as Bessent spoke with the press saying that the administration would not unilaterally lower China tariffs and that a full trade deal and rebalancing could take two to three years. Now, despite comments from China overnight that negotiations are not underway, suggesting they are digging in for a longer fight, equities held yesterday's gains and are back near yesterday's highs again midday. Now, there's been another round of better than feared earnings, particularly within tech. This morning's claims data still isn't showing any signs of deterioration within labor markets, and another round of trade negotiations is happening with Japan.
Now, technically, we seem to be drawing some short-term lines in the sand with 51 and 5,500 in the S&P 500 key levels to watch. Now, the headlines about policy and trade will continue to drive volatility, but let's talk about earnings for one moment. Now, recently, in terms of economic data, we've been discussing the delineation of BT and AT, before and after tariffs. The same applies to earnings and Q1 falls into that BT bucket. In general, outside of companies that are exposed to the consumer, the Q1 numbers have been pretty good. Many of the consumer-facing companies have cut or removed guidance. However, more broadly, companies have been only tweaking their guidance with management teams trying to provide some framework around exposure and impact under different scenarios.
They are starting to lay out their strategies for investors, highlighting cost controls and other mitigation efforts, including shifting supply chains, inventory management, as well as changes to pricing. Now, one thing we're not hearing about is the reduction in headcount, which is very important for the economic backdrop going forward, though comments from recruitment firm, Robert Half on their conference call does continue to point to a slowing hiring trends. Now, we're still early, but tech has been an upside standout thus far. However, most of the mega-cap tech names haven't reported yet. Alphabet is on deck after today is closed, and the rest ex Nvidia are next week. Now, looking ahead, next week will be the peak of earnings season. There is also some important economic data including Q1 GDP, PCE, ISM manufacturing, and the BLS Employment Report to close out the week, and I'm sure there will be no shortage of headlines from Washington.
Hopes are clearly building for positive headlines related to current negotiations within India, Japan or Vietnam, or detente with China. Once again, thank you for spending some time with us today. Remember, you can always watch on tv.nyc.com or our YouTube channel or listen on the Inside the ICE House podcast feed. I'm Michael Reinking. I'll talk to you again next week.
Speaker 2:
That's our conversation for this week. Remember to rate, review and subscribe wherever you listen and follow us on X@ICEHousePodcast. From the New York Stock Exchange, we'll talk to you again next week inside the ICE House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, expressed or implied, as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
