Market Insights

Stocks are rebounding on hopes the U.S. will reduce tariffs after China showed willingness to discuss trade.

The S&P 500 rose 2.9 percent between Friday, April 25, and Friday, May 2. It was the third gain in the last four weeks, with 81 percent of the index’s members advancing.

China’s Commerce Ministry signaled willingness on Friday to consider talks with President Trump to ease the tensions between the world’s two largest economies. The statement followed a post by a government-linked social media account on Wednesday saying negotiations wouldn’t “be bad for China at this stage.”  Another report from The Wall Street Journal said Beijing may take steps to thwart fentanyl production.

Separately, Canadian Prime Minister Mark Carney said he would visit Washington for talks tomorrow. (China is the third-biggest trade partner with the U.S. and Canada is No. 2 behind Mexico.)

Those headlines suggest the tariff crisis that began in late February is showing signs of improvement. There were also some positive economic and earnings reports:

• Non-farm payrolls increased more than expected and unemployment remained stable.
• Microsoft (MSFT) beat earnings and revenue estimates as its Azure cloud-computing division grew more than expected.
• Meta Platforms (META) beat earnings and revenue surpassed estimates as traffic increased more than forecast.
• Both MSFT and META increased capital-spending plans, which could support the broader tech space.
• Data-center hardware stocks like Seagate Technology (STX), Western Digital (WDC) and Monolithic Power Systems (MPWR) jumped on strong quarterly results.

Still, other data points were negative. First-quarter economic growth unexpectedly shrank because tariff fears pulled forward a glut of imports. Initial jobless claims were higher than forecast and continuing claims hit a 3-1/2 year high. Consumer confidence dropped more than forecast to a five-year low.

Broad Rally

Industrials were the leading sector last week, powered by HVAC companies like Carrier (CARR) and Trane (TT). Both rallied on strong quarterly results. Howmet Aerospace (HWM) also jumped after beating estimates.

Technology was the No. 2 performer, bolstered by MSFT and STX. Arista Networks (ANET) also climbed before its quarterly report tomorrow afternoon.

Airlines, software companies and Chinese stocks were some of the other big gainers.

Energy was the only negative sector as recession fears weighed on crude oil. Gold and gold miners also fell, a potential sign of improving risk appetite.

Two of the noteworthy decliners were Super Micro Computer (SMCI) and Eli Lilly (LLY). SMCI preannounced weak results and LLY missed top- and bottom-line estimates.

Wall of Worry?

Based on the conditions, some investors may think stocks are climbing a proverbial “wall of worry.” The American Association of Individual Investors’ regular poll shows more than half of respondents have been bearish for 10 straight weeks. It’s the longest negative streak since the data began in 1987.

Another report from LSEG Lipper said investors have withdrawn capital from stock funds for three straight weeks.

That kind of negativity is a potentially contrarian sign because it may suggest fewer sellers remain and some could become buyers.

Data from FactSet may be consistent with a glass-half-full view. Earnings growth is now running at 12.8 percent for the current quarter, up from 10.1 percent last week and 7.2 percent the previous week. That may indicate Wall Street analysts were too negative when they lowered profit estimates in recent weeks.

Another issue could be the Federal Reserve. Last week’s strong employment data reduced expectations for a rate cut next month. Goldman Sachs and Barclays both moved their predictions from June 18 to July 30. That could spur some uncertainty or surprises when the Fed meets on Wednesday and Chairman Jerome Powell speaks.

Charting the Market

The S&P 500 appears to have strong bullish short-term momentum as it rebounds from the lows of early April.

The index has climbed for nine straight sessions, its longest winning streak since November 2004.

Its advance/decline line also made a new high on Friday. That’s a potential sign of bullish internals.

The benchmark also had its highest weekly close since March 7.

Prices have returned to their former range on April 2, immediately before President Trump’s tariff announcements hammered sentiment. Traders may look for the index to pause in this area, or potentially test the highs from March 25.

The S&P’s moving average convergence/divergence oscillator (MACD) is climbing and prices have stayed above the rising 21-day exponential moving average. Those points are also potentially consistent with positive short-term trends.

The U.S. dollar index could also be important, as well. It dropped sharply in March and April along with stocks, suggesting global investors were shunning U.S. assets. However, the greenback has stabilized at levels from July 2023. Further stability in the dollar could suggest worries about the U.S. have eased.

SPDR S&P 500 ETF (SPY), daily chart, with select patterns and indicators.

The Week Ahead

This week’s big event is the Fed meeting on Wednesday. Earnings season continues.

The Institute for Supply Management’s service-sector index is due today, along with results from Palantir Technologies (PLTR) and Ford Motor (F).

Advanced Micro Devices (AMD), ANET, SMCI report earnings tomorrow.

Wednesday morning features crude-oil inventories. The Fed will release its monetary-policy statement at 2 p.m. ET. Chairman Powell speaks 30 minutes later. Results are due from Walt Disney (DIS), Uber Technologies (UNER) and DoorDash (DASH).

Initial jobless claims are on Thursday morning.

Several Fed officials will speak on Friday.

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