Market Insights

The stock market is breaking out as Treasury Secretary Scott Bessent slashes tariffs on Chinese goods.

S&P 500 futures jumped more than 3 percent early today, clearing their range from early April before President Trump announced unexpectedly high tariffs. The surge follows a drop of 0.5 percent, between Friday, May 2, and Friday May 9. That was the index’s smallest move since early February, a sign of easing volatility.

Bessent said duties on Chinese goods will drop from 125 percent to 30 percent. (Some fentanyl products keep higher rates.) The reversal followed high-level meetings in Switzerland, with the potential for further talks in coming weeks. It offers to prevent shortages of goods and potential layoffs across industries like trucking and retail.

There was also potentially good news in the key semiconductor industry. Officials confirmed the Trump Administration confirmed it will relax limits on exports of AI chips imposed at the end of the Biden Administration. Microchip Technology (MCHP), whose products are used in a wide range of chip-based devices, reported strong quarterly results.  Advanced Micro Devices (AMD) beat estimates as well. That added to a stream of positive headlines for the industry, supporting sentiment before Nvidia’s (NVDA) key report on May 28.

Overall earnings have surprised to the upside. FactSet reported that profit growth for first quarter has accelerated to 13.4 percent, the third straight week of increasing numbers. Companies that beat estimates rose more than expected and fewer companies than average have issued weak guidance. Those points suggest corporate America is weathering the tariff storm. Could the broader market recover quickly if trade tensions keep easing?

Hawkish Fed

The Federal Reserve left monetary policy unchanged last week and indicated it’s in no hurry to cut interest rates. Chairman Jerome Powell repeated an earlier warning about potential stagflation, citing “risks of higher unemployment and higher inflation.” Other officials like governor Michael Barr, New York Fed President John Williams and Richmond’s Tom Barkin followed with similar comments. That reduced the odds of rate cuts at the meetings on either June 18 or July 30, according to CME’s FedWatch tool.

Investors will get more clues on interest rates tomorrow morning when the government releases the consumer price index (CPI) inflation report for April.

Health care was the worst performing sector last week after Health Secretary Robert F. Kennedy Jr. placed Vinay Prasad in charge of vaccines at the FDA. Prasad has made skeptical comments about promoting inoculations. That weighed on Moderna (MRNA), which is down 42 percent so far this year. (That makes it the biggest laggard in the S&P 500, according to TradeStation data.)

Vertex Pharmaceuticals (VRTX) had its biggest weekly drop in more than four years after earnings and revenue missed estimates. Sales of a new non-opioid pain drug also missed projections. Regeneron Pharmaceuticals (REGN) and Eli Lilly (LLY) continued to fall after their numbers disappointed the previous week.

Gold, Oil Bounce

Gold and oil both rose last week, although there could be opposing reasons. Gold has steadily climbed since mid-December and accelerated its gains through early last month.

Crude-oil futures moved in the opposite direction as investors worried about trade wars disrupting the global economy. However, last week they rebounded after holding near a two-year low.

Traders may view both commodities as ways to position for the trade wars. Further tariffs and uncertainty could potentially support gold, while resolution of the conflicts may favor energy.

Industrials were the top performing sector last week amid rebounds in airlines and aerospace. Rockwell Automation (ROK) also jumped on strong quarterly results.

Walt Disney (DIS) advanced thanks to strong growth in its Disney+ streaming business. Diabetes company Insulet (PODD) bucked the weakness in healthcare, beating on the top and bottom lines.

Charting the Market

The S&P 500 ended last week trapped at a key price zone from April 2, immediately before President Trump’s tariff announcements drove the index below 4,900.

The tight price action suggests investors are hoping for resolution of the impasse. Earnings have been strong and sentiment (as measured by the American Association of Individual Investors) remains bearish. That combination may create potential for a rebound if the U.S. and China reach a trade agreement.

However, if they fail, the current zone could emerge as new long-term resistance.

Breadth has continued to improve as the advance/decline line also hit a new record high.

The S&P 500 is also above its 50-day moving average and short-term MAs are rising. That may be consistent with a longer-term comeback.

Treasuries could be important with the yield on the U.S. 10-year note sitting in the middle of its range for the year. That could be impacted in the near-term by tomorrow’s CPI report. It could also move based on developments in Congress as lawmakers look to extend tax cuts and raise the debt ceiling. Last week also saw a poor auction for 30-year Treasury bonds amid weak foreign demand. That’s a potential warning sign that tariffs have hurt the government’s ability to borrow.

S&P 500, daily chart, with select patterns and indicators.

The Week Ahead

This week has some important economic news, although headlines involving trade could remain a dominant catalyst.

Tomorrow brings the CPI inflation report at 8:30 a.m. ET. There are also oral arguments in the U.S. Court of International Trade about the legality of tariffs announced on April 2. They are apparently the first court proceedings on the levies since their promulgation.

Crude-oil inventories are on Wednesday, along with earnings from Cisco Systems (CSCO).

Thursday is the busiest session, with retail sales, producer prices, initial jobless claims and NAHB’s homebuilder sentiment index due. Walmart (WMT), Alibaba (BABA) and Applied Materials (AMAT) issue results.

Building permits, housing starts and consumer sentiment are on Friday morning.