Hey team. The S&P500 index fell 2.6% this week, pushing the market benchmark back into the red for the year, amid a fresh round of tariff threats from the Trump administration.
Let’s re-cap last week’s events and see what’s ahead for this market!
Macro Viewpoint
US stocks finished down on the week (SPX -2.6%, NDX -2.4%, RTY -3.5%) as investors digest the US downgrade of debt, a budget bill that could further increase the Federal deficit, retail earnings, and continued tariff uncertainties.
Trump is recommending a straight 50% tariff on the European Union as soon as June 1st if trade negotiations fail.
This adds to the Moody’s downgrade, weak Japan bond auction, higher UK CPI, and deficit concerns that the market had to digest this week.
Short week in the US next week with markets closed Monday for Memorial Day.
Focus will be on Fed speak, NVDA earnings Wednesday, and a handful of macro data points (FOMC Minutes Wednesday, GDP second reading Thursday, PCE & Consumer Sentiment Friday).
Don’t mess up the bonds
If you're a new investor, you might assume that equities dominate global capital markets — but that's not the case. The bond market is actually larger than the equity market globally, playing a critical role in funding governments and corporations alike.
Rates have touched the pain threshold for equities. The rates-equity correlation flipped to negative this week, as the market narrative shifted from tariffs de-escalation relief to debt sustainability concerns.
Yields rising further from here are likely to be a material headwind for equities, particularly alongside slower growth & higher tariffs.
Current conditions are close to the zero-correlation boundary, meaning yield/equity correlation is likely to become increasingly negative if nominal yields OR CPI increase materially.
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