Market Summary
U.S. equities ended the shortened trading week on a relatively strong note with the S&P 500 gaining 1.9% as back-and-forth tariff uncertainty and elevated yields placed a lid on the recent rally from April’s lows. Investor sentiment has been on the upswing following placating economic data and resilient earnings from key mega-cap and AI-related companies – particularly Nvidia (NVDA). So far, resilient ‘hard’ data has combated the negative sentiment and trade confusion, lifting the market back towards all-time highs. Going forward, the market will be looking for growth drivers, a sustained drop in yields, and trade de-escalation to help justify elevated near-term valuations.
Trade Noise
Market participants welcomed the extended suspension of tariffs targeting the European Union – but noise surrounding trade negotiations with China prompted sideways trading during the second half of the week. Other developments in the Trump/tariff saga include the U.S. International Court of Trade’s ruling that the President could not legally enforce reciprocal tariffs by using the International Emergency Economic Powers Act (IEEPA) as a precedent – the court has given ten days to remove the tariffs, although those directed at steel, aluminum, autos, and China can remain. Subsequently. The US placed a temporary stay against this order while an appeal is reviewed.
Earnings
The leading AI chipmaker and market lynchpin, Nvidia (NVDA), reported better-than-expected earnings and revenue despite tariff measures curtailing some growth potential. The company’s data center segment grew 73% to $39B from the prior year, above expectations, with demand for its latest Blackwell chip driving growth and offsetting export control related setbacks for its older, H20 chip, designed for China. The headwind for NVDA and the AI market in general will continue to center around trade restrictions and the fact that China’s significant AI market will be closed to the US for the time being. Nonetheless, the positive results and better-than-feared impact from trade restrictions were enough to pull investor sentiment back on the AI wagon.
Inflation & Consumer Savings
On the economic front, personal income and savings increased in April, stemming from consumer reactions towards tariff uncertainty. As tensions slowly abate, investors are interpreting this as a near-term growth driver with pent up savings potentially fueling an increase in spending. Inflation data was pleasing, as well, with the Fed’s preferred gauge for inflation (the PCE Price Index) increasing 2.1% in April, down from 2.3% in March – relative to the Fed’s 2% target. The next FOMC meeting is on June 18 as the market awaits commentary surrounding the path of future rate cuts.
PCE Price Index (% yr/yr) - 2.1% April
Week Ahead
This week, market moving events include the Employment Report for May as investors look for continued stability in the labor market to support consumer strength. On Thursday, leading chipmaker Broadcom (AVGO) will report its second fiscal quarter earnings as another barometer for AI-demand following Nvidia’s report last week. Investors will continue to digest constantly changing news on the trade front along with rate expectations ahead of the Fed’s June 18 meeting.
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Chart Sources: MFG, TradingEconomics