Indexes Retreat, Major Q1 Earnings Queued Up

As we headed into the past week, stocks appeared ready to build on the ‘snap-back’ type of rally we had experienced the week prior. Over the weekend, before last Monday’s market open, President Trump announced a significant update regarding his tariff policy. He announced that he was making a special tariff exemption for many types of electronics, including cell phones, computers, & semiconductors. This exemption appeared to address a major problem that many market bulls had warned against. However, once Monday’s market opening came around, we began to get more of the mixed messaging on tariff policy that we have become accustomed to over the past few weeks. Headlines from Washington began to say that despite the President’s tariff exemption announcement, that in fact, portions of that exemption were only temporary because item-specific tariffs were still on the way. Namely for semiconductors and pharmaceuticals. Due to the consistent ‘herky-jerky’ nature of these tariff announcements, the bullish optimism that was experienced in futures markets over the weekend and at Monday’s open was indeed short lived. Stocks began to sink again due to the additional tariff news.

The pressure on stocks unfortunately was not limited to Monday. On Wednesday, Fed Chair Jerome Powell gave a speech and a few of the things he said diverged from his recent commentary on new tariffs, spooking investors. After seeing a few of the recent tariff announcements, including the ‘Liberation Day’ tariffs, Fed Chair Powell communicated that the current tariffs that have been announced were substantially higher than what he had anticipated even in a worst-case scenario. Additionally, he said that he foresaw these new tariffs notably raising inflation, at least temporarily, if not persisting for a longer period of time, and putting downward pressure on growth. Where the Fed Chair’s comments last week differed from his previous statements were regarding the inflationary impact of new tariffs. Previously, Powell had insisted that any tariff-related price shocks were likely to be ‘transitory’ and limited to a one-time spike. This time, Powell left the door open to the possibility that the inflationary impacts from the fresh tariffs may not in fact be one-time only, but instead an ongoing issue. While Powell was delivering his commentary regarding tariffs, stocks almost instantaneously began to take a leg lower because they only stoked investors’ current fears about a stagflationary environment on the horizon.

Despite the continued uncertainty last week regarding tariffs, it was not all bad news. Of the top companies that reported earnings last week, nearly all of them posted impressive Q1 EPS beats. While significant murkiness remains regarding many companies’ guidance for the remainder of the year, seeing these strong results from Q1 thus far is encouraging. Additionally, the primary macro-economic report that we were watching posted an even better result than was expected. U.S. Retail Sales for March posted a 1.4% MoM gain against an estimate of 1.2%. While many expect that we saw such a great increase in spending due to businesses & consumers alike pulling forward a number of purchases in advance of incoming tariffs, nonetheless, it is positive to see that the consumer still has the ability to spend.

After this past week’s developments, our outlook on the market is largely unchanged. We still clearly view this as a bear market even as the S&P 500 is only 14.1% off its highs. Still nearly 58% of S&P 500 stocks are 20%+ below their 52-week highs and this past week we finally had a widely watched technical ‘Sell’ signal confirmed. The 50-day moving average for the S&P 500 crossed below the 200-day moving average, often referred to as a ‘death cross’. Not to overdramatize the event, but it is a widely watched technical metric, so now that it has occurred it is important to note. Additionally, the S&P 500’s 200-day moving average is now sloping down, which is an additional bearish sign. Furthermore, just looking at the trading action of the S&P index over the past two months, the chart is plainly making a classic series of lower lows and lower highs. We do expect that in the next few weeks there will be a catalyst that will cause the market to retest the early-April lows and it is important that these lows hold. We still see a great deal of choppy trading and head-fakes on the horizon, and we plan to continue to be judicious in identifying new trading opportunities whether they be bearish or bullish.

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Key Events to Watch For

Trade Deal Developments (Tariff Removals)
Q1 Earnings Ramp Up
Fed Commentary

As we turn the page on this past weeks’ worth of trading, looking ahead to the coming week, we are still going to be keenly watching for any news of trade deals being made. We are only a little more than a week into the 90-day pause on the ‘Reciprocal Tariffs’, allowing time for new trade deals to be made. If we arrive near the end of this window without key deals being made, ex-China, it is our opinion that likely this negotiation window will be extended. There have been some hints that a few trade deals may be near. Frankly any substantive progress on this front will be warmly welcomed by the markets. However, the size and scope of the market’s reaction will be determined by which country the deal is with and what the final terms are. As we have seen in the past few months, the new trade-related headlines coming from Washington have been market-movers and we expect this hypersensitivity to continue.

This coming week is fairly light regarding major economic reports, however, there will be no shortage of significant earnings reports. We are now arriving at the heart of Q1 ’25 earnings season this week. Several of the now not-so ‘Magnificent 7’ companies will post their latest earnings this week. After the market closes on Tuesday & Thursday, Tesla, Inc. (TSLA) & Alphabet Inc. (GOOGL) respectively will report their Q1 earnings. Among the number of other significant companies due to report this week, a few others that stand out are GE Aerospace (GE), RTX Corp. (RTX) & AbbVie Inc. (ABBV). Not only will the earnings from these companies be closely watched by investors but also if any companies are confident enough in this current environment to provide forward guidance, this will be heavily parsed as well.

The final theme that we will be paying close attention to in the week to come will be ongoing commentary from Fed officials before they head into their pre-meeting quiet period next week. The next FOMC meeting is scheduled for May 6-7^th, which will be arriving shortly. As we saw last week, economic commentary from Fed officials, in the current market environment, holds a lot of sway and can move markets. This week there are at least nine speaking engagements scheduled for Fed officials, so expect a heavy dose of Fed-related headlines. Traders will be looking for any additional comments regarding the projected effects of new U.S. trade policy as well as any hints about rate cuts that could be coming later this year.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,