You Are Not Fired

Good Afternoon. It was a comeback week for the markets, with all indices making substantial gains. After this week, markets recovered half the losses from the sell-off post-liberation day. Oversold tech stocks came back stronger this week. Next week is crucial, with five of the Mag Seven stocks reporting earnings and the PCE inflation data coming in on Wednesday. I am sure the earnings will be good, and also the PCE inflation is supposed to cool down to ~2.2% as per the Cleveland Fed forecast. The constant flow of good news on the earnings and macro can push markets higher and recover some more losses. I wrote in detail about the impact of tariffs in this newsletter, and that markets are overreacting. I do not expect a full trade war to take place. Read my previous newsletter for more details - Tariff Impact Analysis.

Below are some of the essential things to note from this week:

Trump Plays Down Issues With The Fed:
This week's main reason for the market recovery was Trump's lowering of his tone and playing down his remarks on Fed Chair Jerome Powell. Markets welcome this development as it lowers the concerns around the Fed’s independence. Even when Trump commented about firing Jerome Powell, I am sure he was not serious, as firing the Fed Chair wouldn’t change anything. The President must fire the entire FOMC or the voting members to influence the rate decision. The Fed Chair, on its own, does not decide the rates.

Bassent Expects Deal With China:
Other good news was regarding the markets' second primary concern, the trade war with China. The US Treasury Secretary commented that the trade escalation with China is unsustainable, and he expects a deal to happen between the two countries. As I mentioned earlier, good sense seems to prevail ultimately.

Strong Earnings:
More than 75% of the companies reported this week beat earnings estimates. I expect the trend to continue as the effects of tariffs, if any, are not factored into the Q1 earnings. Rather, in some cases, companies have benefited from consumers' panic buying to avoid upcoming tariffs.

Pros Sold - Retail Bought:
An important stat reported by the Wall Street Journal is that so far this year, hedge funds have dumped over $1 trillion more in stocks than they bought, while individual investors have steadily added $50 billion a month, according to JPMorgan.

For the week:

• The S&P 500 is up 4.59%, the Nasdaq is up 6.73%, and the Dow 30 is up 2.48%.

  

  Source: barchart

CNN's Fear & Greed Index now stands at 35 (Fear) out of 100, up 14 points from last week. Details here

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

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

Target Rate Probabilities for May 7th FOMC Meeting:

CME FedWatch

Progress On Trade Negotiations: The Trump administration has drafted a framework for trade talks to avoid tariff hikes, sources said. US negotiators will use a template covering tariffs, non-tariff barriers, digital trade, economic security, and commercial concerns to guide discussions. Read

Positive Comments From Bassent On China: Wall Street stocks and oil prices rose after the US Treasury secretary called the trade war with China “unsustainable.” According to sources, Scott Bessent told investors at a JPMorgan event he expects the two countries to strike a deal eventually. Read

ECB Task Force To Simplify Bank Regulations: The European Central Bank has formed a task force, led by top governors, to streamline banking regulation as concerns mount over the region’s competitive decline. Read

Another Good News For Crypto: The Federal Reserve and FDIC have withdrawn multiple statements on banks' crypto activities to support innovation and clarify policies. Two 2023 joint statements on liquidity and other risks were pulled, reaffirming that banks can engage in crypto activities if aligned with existing laws and regulations. Read

GE Mixed: The engine maker posted adjusted EPS up 18%, with revenue rising 2% ahead of estimates. Read

Tesla Miss: Automakers Q1 net income dropped 71%, pressured by global competition and reputational challenges tied to Elon Musk’s political ties. Read

Verizon Beat: Verizon rose 0.26% after reporting higher Q1 earnings, though postpaid phone losses widened. The company reaffirmed it remains on track to meet full-year targets. Read

IBM Beat: IBM beat Q1 earnings expectations. Revenue rose 1%, topping forecasts. Shares fell as software and cloud misses overshadowed the overall beat. Read

Philip Morris Beat: PM reported earnings above expectations, driven by strong growth in its smoke-free business. Read

Google Beat: Alphabet reported first-quarter revenue and profit above estimates, driven by continued strength in search advertising. Read

T Mobile Mixed: T-Mobile added fewer wireless subscribers than expected in Q1 as intensifying promotions from rivals pressured growth in a saturating U.S. telecom market. Read

AbbVie Beat: AbbVie raised its full-year profit outlook while downplaying concerns over potential sector-specific import tariffs expected under the Trump administration. Read