Michael Reinking:
Hello. I'm Michael Reinking, Senior Market Strategist at the New York Stock Exchange and this is Market Storylines. Every week we're here to keep you up to date on the key trends and events driving global markets. We are recording on Thursday afternoon, so let's dive into this week's Market Storylines.
Last week was a mixed week for US equity markets, largely consolidating some of the recent gains. The administration announced its first trade deal and expectations seem to be pretty high heading into the first high-level negotiations between the US and China taking place in Geneva, Switzerland over the weekend.
Now ahead of those talks last Friday President Trump said 80% tariffs seemed right and put the ball in the hands of Treasury Secretary Bessent. Well, he took the handoff like Saquon Barkley and took it straight to the house. Traders were hopeful there would be some level of de-escalation, but the news far exceeded expectations. The two sides agreed to roll back tariffs for 90 days to allow for further negotiations. For imported goods from China the rate would go from 145% to 30%, which is the 10% baseline tariff and the 20% Fentanyl-related tariffs. The other sectoral tariffs would remain in place. China lowered its tariff on US imported goods to 10% from 125%, while also agreeing to suspend or remove non-tariff measures. The detente sent global markets sharply higher with most major US indices ending the day up over 3% and has started to cause investment banks to readjust recession probabilities and year-end price targets.
The good vibes continued on Tuesday, helped by a slightly better-than-expected CPI report and more trade headlines. President Trump addressed the Saudi-U.S. Investment Forum laying out some of the details of the 600 billion partnership that was announced after his inauguration with investments in AI data centers, infrastructure projects, energy deals, and healthcare manufacturing. And like last week's UK deal, there were more commitments for Boeing planes. US markets continue to move higher, but tech and the AI complex were the biggest beneficiaries.
Wednesday was kind of a quiet day ahead of a big day of earnings and economic data this morning. Now, like much of the recent data, it was pretty sloppy. As expected retail sales showed some moderation, but came in slightly ahead of estimates, though the control group which feeds into GDP missed estimates falling 0.2%. Now, PPI fell sharply with headline down 0.5% month over month, while estimates were looking for an increase of 0.2%. However, there were large upward revisions to last month. Now, the Bureau of Labor Statistics noted that the final demand trade services fell 1.6% accounting for two-thirds of the drop. For the record, it also had a massive upward revision to last month. So what is final demand trade services, you ask? In plain English, this is the margin earned by wholesalers and retailers with the difference between the price they pay for goods and the price they sell them to consumers, which suggests that retailers are eating some of the costs of tariffs.
Now before moving on from the economic data, I'd note that the claims held steady again on a week-over-week basis, and the first of the May regional surveys came out this morning, and while they remained negative, there were some significant improvement from last month when the surveys were taken in the immediate aftermath of the Rose Garden. So to summarize, the long-awaited demise of the consumer and labor market has still not arrived and things don't feel quite as bad as they did a month ago. Shocker.
So what better company to give us a real-time insight into the state of the consumer and the impact of tariffs than the nation's largest retailer, Walmart, which reinforced some of the underlying themes in this morning's economic data. Now, the company delivered solid sales and earnings and continued to benefit from strength in its e-commerce advertising and membership businesses. Now, in general, the consumer was described as resilient, focusing on necessities and value. Health and wellness was a positive standout, but the company did highlight a deterioration in general merchandise with comps expected to be slightly negative down from previous guidance of low single digits. The management did not provide guidance for the earnings next quarter due to the macro environment, but did guide sales growth for the quarter to three and a half to 4%, four and a half percent, and reiterated fiscal year guidance on all metrics. Now management reiterated its goal to keep prices as low as possible and discussed some of their mitigation efforts. However, they noted that even after those measures and the decreased tariff rates, price increases will be coming, with their CFO suggesting that could start at the end of the month and potentially increase in June.
Futures were lower overnight, but began to improve this morning, helped by the data and the earnings, and have continued to move higher throughout the afternoon as yields have turned sharply lower. For the week the S&P 500 is up over 4%, hitting some major thresholds, bringing the rally from the lows to up over 20% and leaving the S&P 500 slightly positive year to date. What a difference a month makes.
Looking ahead to next week, trade will continue to be in focus with the administration teasing another potential deal. As we get into the end of earnings season, there are multiple major retailers and some late cycle tech reports, though Nvidia isn't until the end of the month. The next week there are multiple tech conferences going on as well. In terms of economic data, things get a bit quieter with China retail sales and industrial production on Sunday night, and then the global flash PMIs on Thursday.
The reconciliation process has been moving along in Washington with the contours of the House bill taking shape, but there still seems to be more work to do before Speaker Johnson's self-imposed Memorial Day deadline. But before we get there, hopefully the New York Knicks can break a 26-year streak and close out their first playoff series at MSG since 1999.
That's going to do it for this week. 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, @ICEHouse podcast. From the New York Stock Exchange, we'll talk to you again next week inside the ICE House.
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