1. Market Resilience Amid Volatility
U.S. equity markets posted a strong rebound this week, with the S&P 500 gaining approximately 3% and closing Friday with its ninth consecutive daily gain, the longest streak since 2004. This comes after a turbulent April, where the index initially fell 12.6% before recovering nearly all losses. Volatility collapsed in tandem, with the VIX falling nearly 50% over the past month—the second-largest four-week drop on record.
Key Takeaway: Markets are showing strong resilience with a sharp recovery following April’s pullback.
2. Tariff Tensions and Earnings Divide
Despite the lack of any formal trade agreements, equity markets are behaving as though a resolution is imminent. The S&P 500 is now well above its April 2 "Liberation Day" level, suggesting optimism. However, a divide has emerged in earnings performance between tariff-insulated firms like Netflix and Microsoft and those more exposed, such as Apple and Tesla. Microsoft’s record net income of $96.6 billion and Netflix’s 44% profit growth contrast sharply with Tesla’s 71% YoY net income decline.
Key Takeaway: While markets are hopeful on trade, earnings are bifurcating based on perceived tariff exposure.
3. Technical Recession Signals
Real U.S. GDP declined at an annualized rate of -0.3% in Q1 2025, driven mainly by a steep drop in net exports as firms frontloaded purchases ahead of tariffs. Though the labor market remains strong, this marks the first contraction since early 2022. With bets placing a 57% probability on a technical recession this year, future quarters warrant close monitoring.
Key Takeaway: A technical recession is now a real possibility due to trade-related disruptions.
4. Earnings Momentum Builds
With roughly 75% of S&P 500 companies reporting, Q1 earnings are expected to grow 12.8%, a significant upgrade from prior 7% estimates. Margins have expanded to 12.3%, the highest since Q4 2021, and trailing 12-month earnings are on track to reach another record.
Key Takeaway: Corporate earnings are surpassing expectations, driving upward revisions.
5. Labor Market: Strong but Cooling
April saw 177,000 new jobs added—well above forecasts—extending the streak of job growth to 52 months. However, YoY job growth has slowed to 1.2%, the weakest since March 2021. Job cuts have surged, particularly in the federal government, with 2025 already seeing over 600,000 layoffs.
Key Takeaway: Employment remains healthy short term, but broader data hint at a gradual cooling.
6. Housing Market Awaits Supply Relief
Existing home sales remain near 25-year lows amid high affordability constraints. However, active listings are up 13.7% YoY, a sign that sellers may be capitulating as rate cuts remain elusive. Home price appreciation is decelerating rapidly and could turn negative by summer if supply trends hold.
Key Takeaway: Rising supply and easing prices could begin to thaw the frozen housing market.
7. Oil and Consumer Confidence Slump
Crude oil prices tumbled to $58.50 per barrel, down 18% in April alone—its sharpest monthly drop since 2021. Meanwhile, U.S. consumer confidence fell for the fifth consecutive month to its lowest level in five years, as inflation and trade tensions weigh on sentiment.
Key Takeaway: Energy weakness and falling confidence signal growing consumer and commodity stress.
8. Fed Watch: Rate Cuts on the Horizon?
While the Fed is expected to keep rates steady at its upcoming meeting, futures markets now imply at least three rate cuts by year-end. A stable labor market and receding inflation pressures are reinforcing the case for easing later in 2025.
Key Takeaway: Market expectations for Fed rate cuts are strengthening as economic risks persist.
Next week, markets will digest the Fed’s statement, global PMI data, and inflation prints from key economies including the U.S. and China.
