The S&P 500 gained 0.8% this week as markets digested Wednesday’s Fed decision to hold rates steady at 4.25-4.50% and Friday’s stronger-than-expected jobs report. Major indices traded in a tight range through most of the week, with the VIX continuing its downward trend to close at 19.5—still elevated but approaching more normal levels.
Chairman Powell’s press conference struck a cautious tone, acknowledging heightened uncertainties from recent tariff implementation while emphasizing the Fed’s data-dependent approach. Markets are now pricing in approximately 50 basis points of cuts in 2025, down from 65 basis points last week, as traders recalibrate expectations around a more resilient economy.
April’s employment report showed 195K jobs added (above the 185K consensus), with the unemployment rate holding steady at 4.1% and wage growth moderating slightly to +0.3% month-over-month. This resilience suggests the economy continues to handle trade disruptions better than initially feared.
Key Events This Week
Monday – May 5
- Consumer Credit (3:00 PM ET) Forecast: $16.8B (vs. $14.1B prior) Credit growth is expected to remain modest, well below pandemic-era expansions.
Tuesday – May 6
- Trade Balance (8:30 AM ET) Forecast: -$74.8B (vs. -$69.1B prior) The deficit is expected to widen, potentially reflecting early tariff impacts.
- Consumer Inflation Expectations (11:00 AM ET) Last: 3.0% Any uptick could reignite inflation concerns.
Wednesday – May 7
- Wholesale Inventories (10:00 AM ET) Forecast: +0.2% Modest inventory rebuilding expected after recent drawdowns.
- Atlanta Fed President Musalem Speaks (1:00 PM ET) His comments on inflation and growth balance will be closely watched.
Thursday – May 8
- Initial Jobless Claims (8:30 AM ET) Forecast: 228K (vs. 225K prior) Still relatively low, but any upward trend could signal labor market cooling.
- PPI (8:30 AM ET) Forecast: +0.3% MoM, +2.3% YoY Producer inflation expected to remain moderate despite tariff impacts.
Friday – May 9
- CPI (8:30 AM ET) Forecast: +0.3% MoM, +3.4% YoY Core: +0.3% MoM, +3.6% YoY The most important release of the week will show whether tariffs are beginning to flow through to consumer prices.
- Consumer Sentiment (10:00 AM ET) Forecast: 54.0 (vs. 52.2 prior) Expected to remain near decade lows amid ongoing trade concerns.
- Fed Governor Jefferson Speaks (12:30 PM ET) First Fed comments after the inflation report will be significant.
Market Insights
First-quarter earnings season is wrapping up with mixed results across sectors. Technology companies have generally outperformed, with 82% beating estimates, while consumer staples and utilities have disappointed. Guidance has been cautious, with many companies citing tariff uncertainty in their forward outlooks.
The Treasury market has stabilized, with the 10-year yield holding near 4.3% despite the stronger jobs report. This suggests fixed income investors remain concerned about longer-term growth prospects even as near-term recession fears have faded.
Markets are also watching developments in trade negotiations, with U.S.-EU talks scheduled for May 10-11 potentially providing some relief for European exporters. However, the 125% tariffs on Chinese goods appear firmly entrenched, with no high-level negotiations currently scheduled.
Bottom Line
Next week’s CPI report will be critical in shaping the market narrative around inflation and Fed policy. While the initial panic around tariffs has subsided, investors remain cautious about potential second-order effects on prices and growth.
Technical indicators continue to improve, with the S&P 500 now above both its 50-day and 200-day moving averages. However, breadth remains relatively weak, with fewer than 60% of stocks trading above their respective 200-day moving averages—suggesting the recovery remains somewhat fragile.
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