Peak tariff uncertainty seems to be in the rear-view mirror now. We are getting progress with China and the most recent news is that the White House will be sending out letters with terms to several countries within the next few weeks to accelerate closure. The rest of the world did not turn their back on the United States so it looks like there will be a re-set on global trade. There are still many questions to be answered as to how pricing changes for goods and services. I doubt there will be clarity until 2026.
Stocks Continue to Rebound
In the meantime, the fear that trade would collapse like we saw in COVID never happened. As you can see in the chart below, the S&P continued higher this week and some of the momentum indicators at the bottom of this chart show the negative momentum is being wrung out of stock prices. You can see that this pullback was about re-testing the 2022 top at 4824 and it held which means this area is a significant level of support in the chart.
It is likely we will be seeing new highs soon if the momentum continues. I expect that the market will turn back to fixating on inflation and interest rates for the remainder of Q2.
Economic Data
Among all the trade deliberations, we did get inflation data this week. The Consumer Price Index (CPI) dropped to 2.3% in April from 2.4% in March, the lowest since February 2021. The Producer Price Index (PPI) fell 0.5% month-over-month in April – the largest drop since 2020. Annualized, the PPI came in at 2.4% which was below expectations of 2.5%. This shows progress in the right direction but there is still a concern that tariffs could bump up these numbers later this year.
Also, the widening trade deficit underscored import-heavy activity. For March, the U.S. trade deficit widened to $140.5B from $123.2B in February. The goods deficit grew by $16.5B to $163.5B, reflecting trade imbalances amid tariff policy shifts. The trade deficit will continue to haircut GDP numbers in the coming months which gives the Fed some leeway to bring rates down another 25 to 50bps. As long as labor markets hold, we should see volatility continue to fall and get back to a trending stock market.
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