📈 S&P 500 Turns Positive for 2025

Good Afternoon. It has been a stellar week for the markets, with positive developments on the US-China trade deal. All the major indices did great, with Nasdaq leading the way with 7%++ returns. S&P 500 has now turned positive for the year, erasing all the losses post the tariff announcement.

Source: Reuters

Below are the key updates of this week:

US-China Trade Deal:
The most significant development of the week was that the US and China's weekend talks yielded positive results. The two major trading partners announced a 90-day rollback of initial tariffs. The US will temporarily slash tariffs on Chinese goods from 145% to 30%, while China will cut its levies on US imports from 125% to 10%, per the joint statement.

Effective Tariff rate: According to JPMorgan’s Michael Feroli, the effective U.S. tariff rate has now dropped to 14% from a peak of 24%, but remains well above the 2.3% level in 2024.

US Rating Downgrade:
The US lost its last AAA rating from the major rating agencies when Moody’s downgraded its debt late Friday by one notch to "Aa1." This should not have any significant impact as there is no real alternative insight into the US debt.
The rating change is unlikely to affect banks’ risk-weighted capital calculations, as regulators treat Aaa and Aa1 the same for capital risk weights. A downgrade to Aa1 is also not going to impact collateral treatment. DTCC and CME classify US Treasuries, with haircuts based on maturity and type, not rating. LCH applies similar haircuts to USTs and lower-rated Gilts.

Source: Financial Times

Tech IPO Market Finally Looking Promising:
eToro successfully went public on Wednesday. Hinge Health is expected to follow up next week. After a long IPO freeze since early 2022, activity finally picked up early this year — until Trump’s April tariff announcement rattled markets. Chime, which had delayed its listing, filed its prospectus this week.

Overall, sentiments are improving, and after a long break, we can expect a flurry of tech IPOs this year.

First Inflow of US Equity Funds in 5 Weeks:

After five weeks of outflows, U.S. equity funds saw net inflows of $12.9 billion in the week ending May 14. The rebound was driven by renewed optimism around tariff talks and fading inflation concerns. With the recent pullback rally in US stocks, the S&P 500 PE has recovered from lows of 17.9 to 21.

Walmart Results:
One key point to note is that Walmart operates with a 3% net margin. So, the company mentioned on the call that it would have no option but to increase prices due to tariffs. Trump promptly opposed this with a Truthsocial message, warning Walmart and other retailers not to pass on the costs to consumers.
So there are only a few options for retailers:

• Negotiate harder with their vendors and pass on the tariff costs to the exporters, or

• Improve operational efficiency by cutting costs.

• The third option will be to take a hit on already thin margins.
  
  The first two options will be a priority, especially after Trump's stern warning. The second option will lead to some job losses (to improve efficiency), but the current strong labor market can handle it. Overall, the impact on inflation will be contained as much as possible, and it will be surprising for many.
  
  Inflation Cools:
  Inflation came in slightly below expectations in April, with CPI rising 0.2% month-over-month and 2.3% year-over-year— its lowest since February 2021. Core CPI matched estimates at 2.8% YoY but missed the monthly print, rising 0.2% vs. 0.3% expected.
  This implies that the Fed's preferred PCE inflation number should come in better than expected later this month. The Cleveland Fed projects PCE at 2.23% YoY, closer to the Fed’s 2% average inflation target.
  
  Produce Prices Fall:
  📉 US producer prices saw their biggest drop in five years, falling 0.5% in April — a sharp reversal after staying flat in March. The decline, mainly driven by shrinking margins, suggests companies are absorbing part of the tariff impact rather than passing it on to consumers.

  

  Next Week Retail Earnings:
  It will be essential to see the tone from the other major retailers reporting earnings next week. Lowes, Target, Home Depot, and TJX are reporting next week.

Overall, the Walmart situation analyzed above, the drop in Producer Prices, and the continuous progress on inflation show that the tariff impact will be moderate for the end consumer. The timing seems right for the economy to experience the tariff shock rather than when inflation was double digits a couple of years ago. The Fed Chair Jerome Powell commented this week that the higher real rates may reflect the possibility that inflation will be more volatile.
 

For the week:

• The S&P 500 is up 5.27%, the Nasdaq is up 7.15% %, and the Dow 30 is up 3.41%.

  

  Barchart

CNN's Fear & Greed Index now stands at 71 (Greed) out of 100, up 9 points from last week. Details here

The top five trending stocks on Reddit are UnitedHealthcare, SPY, Nvidia, AAA, and Tesla. Read More

Here is a summary of this week’s key economic releases:

Target Rate Probabilities for June 18th FOMC Meeting:

CME FedWatch

US-China Trade Deal: The US and China agreed to sharply roll back tariffs for 90 days—a surprise move that eased trade tensions and lifted global markets. Read

Trump Slams Walmart: Trump slammed Walmart on Saturday, urging retailers to absorb tariff costs instead of passing them to consumers. Despite economic inflation warnings, he insisted companies like Walmart should sacrifice profits to support his trade agenda and boost U.S. manufacturing jobs. Read

Moody’s US Rating Downgrade: Moody's downgraded the U.S. sovereign rating on Friday, citing concerns over the $36 trillion debt. It's the last major agency to strip the U.S. of its Aaa rating, first granted in 1919. The move could complicate Trump's tax agenda and unsettle global markets. Read

Relief for Banks: US regulators are preparing the most significant cut in bank capital rules in over a decade, with plans to ease the supplementary leverage ratio in the coming months—a clear step in Trump-era deregulation. Read

eToro IPO Success: eToro shares jumped on their Nasdaq debut Wednesday after raising nearly $310 million in its IPO. Read

SEC Investigating Coinbase Claims: The SEC is investigating whether Coinbase misrepresented its user numbers in past filings. The probe, which has been ongoing since the Biden era, centers on the claim of over 100 million “verified users” in its IPO documents, which were later dropped. Coinbase has engaged Davis Polk to respond and has been in contact with the SEC this year. Read

Record Foreign Ownership Of US Treasuries: Foreign ownership of U.S. Treasuries jumped to a record $9.05 trillion in March, up $233 billion from February and nearly 12% higher year-over-year, marking a third straight monthly gain amid strong demand after Trump took office. Read

Coinbase Cyber Attack: Coinbase disclosed a cyberattack affecting a "small subset" of customers, estimating a potential impact of $180M–$400M, per its latest filing. Read

Tesla’s New 3% Rule: Per SEC filing, Tesla has barred shareholders owning less than 3%—about 97 million shares—from suing its directors or officers for breach of duty. Read

Cisco Beat: Cisco issued a strong revenue forecast for the current quarter, signaling it’s benefiting from AI-driven demand for networking systems. Read

Applied Materials Mixed: Applied Materials (AMAT) reported higher profit and revenue, supported by steady demand for semiconductor equipment. Read

Alibaba Miss: Alibaba missed revenue estimates as it navigates weak consumer demand and tariff uncertainty with new strategies to sustain spending. Read

Deer & Company Beat: With U.S. corn planting two-thirds complete, Deere beat fiscal Q2 expectations, lifting the stock Thursday—even as it trimmed full-year guidance. Read

Walmart Mixed: Walmart posted solid sales and earnings growth, but flagged rising tariffs and economic turbulence as reasons for upcoming price hikes. US same-store sales rose 4.5% in the quarter ended April 30. Read