Markets enter the first week of May riding an impressive nine-day winning streak for the S&P 500—the longest such stretch since November 2004. Last week’s 3.67% gain helped erase April’s tariff-driven losses, as traders responded positively to stronger-than-expected earnings and encouraging signals on the trade front, including potential signs of a thaw in U.S.-China relations.
While economic resilience remains the prevailing narrative, Friday’s GDP report showing the first quarterly contraction since early 2022 serves as a reminder that economic crosscurrents persist. In this environment, the Fed’s messaging at Wednesday’s FOMC meeting will be particularly crucial for market direction.
Key Events This Week
Monday – May 5
- S&P Final Services PMI (9:45 AM ET) Forecast: 51.0 (vs. 51.4 prior) Looking for continued expansion but at a slightly slower pace.
- ISM Services Index (10:00 AM ET) Forecast: 50.4% (vs. 50.8% prior) Another key measure of service sector activity.
- Ford Earnings (After Close) Tariff impacts on the automotive sector will be in focus.
Tuesday – May 6
- U.S. Trade Deficit (8:30 AM ET) Forecast: -$136.0B (vs. -$122.7B prior) Widening deficit expected amid ongoing trade tensions.
- Palantir Earnings (After Close) Likely to provide insights into AI software demand.
Wednesday – May 7
- FOMC Rate Decision (2:00 PM ET) No change expected, but Powell’s commentary on inflation, growth, and tariff impacts will be critical.
- Fed Chair Powell Press Conference (2:30 PM ET) Markets will scrutinize every word for hints about future policy direction.
- Consumer Credit (3:00 PM ET) Forecast: $11.0B (vs. -$800M prior) A rebound expected after last month’s surprise contraction.
Thursday – May 8
- Initial Jobless Claims (8:30 AM ET) Forecast: 230,000 (vs. 241,000 prior) Labor market showing signs of modest cooling.
- U.S. Productivity (8:30 AM ET) Forecast: -0.5% (vs. 1.5% prior) Potentially troubling decline after strong prior reading.
- Wholesale Inventories (10:00 AM ET) Forecast: 0.5% (vs. 0.3% prior) Watching for signs of inventory accumulation or depletion.
Friday – May 9
- Fed Speakers A packed day with multiple speakers including Governors Barr, Kugler, Cook, Bowman, and several regional Fed presidents.
Market Insights
All eyes will be on Wednesday’s FOMC decision and subsequent press conference. While no rate change is expected, this meeting takes on outsized importance given the complex economic backdrop. The Fed now faces competing concerns—recent GDP contraction, a robust jobs market, and potential inflationary pressures from tariffs.
Powell’s messaging around these dynamics will likely set the tone for markets through mid-year. Any softening in language that suggests greater openness to rate cuts could fuel further equity gains, while continued emphasis on inflation vigilance may temper the recent rally.
Institutional positioning remains noteworthy. According to LSEG Lipper data, investors pulled a net $15.56 billion from U.S. equity funds last week—the largest weekly outflow since December 2024. This bearish institutional positioning stands in contrast to retail investors who have largely maintained their exposure.
The resulting “pain trade” for professional managers could be a continued tech-led rally, with managers forced to chase performance if the market extends its gains. With the Magnificent 7 long/short ratio at 9-year lows among hedge funds, the setup for a squeeze higher remains in place if economic and Fed fears prove overblown.
Bottom Line
Wednesday’s Fed meeting represents this week’s pivotal event, with Powell’s commentary potentially determining whether the recent rally has staying power or was merely a positioning-driven bounce. Technical momentum remains strong, but much hinges on how the Fed characterizes the balance between growth concerns and inflation risks.
While last week’s impressive gains suggest the worst of the tariff-driven volatility may be behind us, traders should expect continued sensitivity to any shifts in Federal Reserve rhetoric or trade policy developments.
The content provided in Market Impact is for informational purposes only and should not be considered as investment advice. Always consult with a qualified financial advisor before making investment decisions.