Weekend Update, May 19th, 2025
Good Mood Markets
Index, Sector & Asset Performance
V-Bottoms are made: The S&P 500 index rose +5.3% last week in a climb that pushed it back into positive territory for the year. The S&P 500 ended the week at 5,958 and is up +7% for the month and +1.3% for 2025. The week started with the Trump administration unveiling a trade deal with China just days after announcing another such deal with the UK. The deal between the US and China calls for a 90-day suspension of reciprocal duties on each other’s goods. The China deal paused tariffs at 30% for imports into the US. This is dramatically lower than the previous 145%, but it is still high and frictionary. There is still a 10% universal tariff on all imports (10% is a minimum and individual countries may see closer to 20% when permanent deals are made), 25% on cars and auto parts, and 25% on imports from Mexico and Canada.
Since April 7, the S&P 500 has rallied over +20%, marking the quickest recovery following a decline of the same level from all-time highs since…October 1998, the prior period our investment team discussed for upwards of 6 weeks.
The S&P 500 Advance-Decline Line is at its highest level ever, which indicates that market internals are stronger than much of the financial media’s commentary. This type of strength supports the potential for a sustainable rally moving forward. All S&P 500 sectors posted weekly gains. Technology rose +8.1%, followed by a +7.7% gain in consumer discretionary, an increase of +6.6% in communication services, and a +5.5% increase in industrials. Energy and financials rose more than +3% each, followed by smaller gains in less cyclical sectors.
As the S&P 500 approaches 6000, 6100, and its prior highs of 6150 this summer, expect gains to slow into at best a lurch-and-grind manner. Macro headwinds of tariffs, inflation fears, tough earnings estimates, and seasonals, make a sustained breakout above 6150-6200 difficult. Super Micro Computer (SMCI) had the largest percentage increase in the technology sector, surging 44% as the company said it signed a memorandum of understanding with DataVolt to develop hyperscale AI campuses in Saudi Arabia. The consumer discretionary sector was led by a +17% jump in Tesla’s (TSLA) shares. In communication services, Fox’s (FOX) shares climbed +12% as the media company reported a surprise increase in its fiscal third-quarter earnings. Healthcare was the weakest sector, gaining just 0.3%. UnitedHealth Group (UNH) had the largest percentage drop in the sector, falling -23% as a Wall Street Journal reported a criminal investigation by the US Department of Justice over possible Medicare fraud tied to its Medicare Advantage operations.
Moody’s downgraded its rating on U.S. sovereign debt post Friday’s close. We expect the effect on the markets over the next few months to be minimal.
A summary of last week’s returns ex-Gold, from FS Investments shows Europe leading. Almost all sectors and countries rose last week.
Interest rate volatility returned late Friday as Moody’s downgraded the credit rating of the U.S. government from Aaa to Aa1. The 10-year Treasury yield finished at 4.48%. Markets now price just two rate cuts in 2025, with the first likeliest to come in September.
Economic Indicators and Earnings Commentary
1Q25 earnings season was a peculiar one, as index EPS growth doubled expectations (13.3% vs. 6.6% consensus) but 28% fewer companies provided forward guidance vs. Q1 2024.
Retail sales rose +0.1%, slightly better than expected, and March sales were revised higher. Producer prices fell due to trade services. Initial jobless claims were 229,000 last week. The University of Michigan Consumer Sentiment Index fell near its lowest level ever, below a mark set in June 2022. Survey data on inflation expectations for the next year skyrocketed to 7.3%, the highest since 1981, and long-run inflation expectations shot up to 4.6%. We remind investors that surveys are horrible at predicting future levels and behaviors.
There will still be a few EPS reports to digest, including Home Depot (HD), which should afford more insight into the impact of tariffs. Other major earnings include Palo Alto Networks (PANW), Medtronic (MDT), Snowflake (SNOW), Intuit (INTU), and Workday (WDAY).
Commodities and Currencies
Oil finished in the low-$60s, where it began. OPEC+ is gradually bringing production back, and U.S. producers are ready to drill if prices rise. A potential U.S. deal with Iran that would allow the nation’s crude to flow more freely is also weighing on sentiment.
Gold has declined -7% over the past two weeks.
Bitcoin had a sharp rally, climbing to over $105,000, the highest level in over two months.
The U.S. dollar looks to have troughed near 100, at peak US “Unexceptionalism,” down -10% from its December 2024 highs.
Oak Harvest Weekly Stock Talk
Past performance is no guarantee of future results. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. The preceding discussion is for informational purposes only. Investing involves risk and no reference to any security listed above should be considered a buy or sell recommendation. Advisory services are provided through Oak Harvest Investment Services, LLC, a registered investment adviser.
