This week marked a notable milestone for the markets, as major U.S. indices climbed back to the levels seen before Liberation Day, effectively erasing recent losses and signaling renewed investor resilience. This recovery was driven in part by stronger-than-expected earnings and solid U.S. jobs data and corporate signals, offering investors a clearer view of the evolving financial landscape. From a surprise contraction in U.S. GDP to stronger-than-expected job gains and the rollout of aggressive new U.S. tariffs, markets had to balance optimism with caution. As major indices posted gains despite the crosscurrents, attention now turns to next week’s key events, including central bank decisions, trade data, and fresh signals on consumer and business momentum.

Economic Overview

• GDP Contraction: The U.S. economy contracted by 0.3% in Q1 2025, marking the first decline since early 2022. This downturn was primarily driven by a surge in imports ahead of new tariffs, which widened the trade deficit. 
• Employment: In April, nonfarm payrolls increased by 177,000, surpassing expectations. The unemployment rate remained steady at 4.2%. Job gains were notable in healthcare, transportation, warehousing, financial activities, and social assistance. 
• Inflation: The Personal Consumption Expenditures (PCE) price index was unchanged in March. Year-over-year, the PCE rose by 2.3%, down from 2.7% in February, indicating a cooling inflation trend.
• Earnings: Major U.S. tech companies delivered stronger-than-expected results, with solid revenue growth across cloud services, digital advertising, and enterprise software, reinforcing confidence in key sectors despite ongoing cost and demand challenges.

Trade Policy Changes

• De Minimis Exemption Termination: Effective May 2, the U.S. ended the "de minimis" tariff exemption for imports under $800 from China and Hong Kong. These imports now face tariffs up to 145%, significantly impacting e-commerce platforms like Temu and Shein, which relied on this exemption to offer low-cost goods.
• China's Response: China has expressed willingness to engage in trade negotiations but has also imposed retaliatory tariffs on U.S. goods, raising duties to 125%. The situation remains fluid, with both nations signaling openness to dialogue while preparing for prolonged trade tensions.

Market Performance

The S&P 500 closed the week up 1.5%, while the Nasdaq Composite gained 1.6%, both benefiting from strong earnings and a solid U.S. jobs report. The Dow Jones Industrial Average also advanced, rising 1.4% for the week, and the Russell 2000, which tracks small-cap stocks, outperformed with a 2.2% gain.

In Europe, markets were more mixed. The Stoxx Europe 600 posted a modest gain of 0.4% as investors balanced easing energy prices against persistent inflation pressures, particularly in core sectors like services. Germany’s DAX and France’s CAC 40 both showed cautious movements, reflecting regional concerns over export demand and broader eurozone growth.

Across Asia, performance was uneven. Japan’s Nikkei 225 slipped slightly, pressured by weaker-than-expected manufacturing data and a stronger yen, while China’s CSI 300 index held largely flat, supported by hopes that trade disruptions from new U.S. tariffs can be contained through ongoing negotiations.

Overall, the past week showed that global equity markets remain highly sensitive to both corporate and macroeconomic signals, with regional variations reflecting the local mix of risks and drivers.

Looking Ahead: May 5 – May 9, 2025

Investors will focus on several key events and data releases next week:

• Federal Reserve Meeting (May 7): The Fed is expected to maintain current interest rates, with attention on any forward guidance regarding monetary policy.
• ISM Services PMI (May 5): This index will provide insights into the health of the U.S. services sector.
• Trade Balance Data (May 6): The release will shed light on the impact of recent trade policies on import and export levels.
• Consumer Credit Report (May 8): This report will offer a view into consumer borrowing trends and financial health.
• Jobless Claims (May 9): Weekly data will help assess the labor market's ongoing strength.

Disclaimer:

This content is for informational purposes only and does not constitute financial, investment, or professional advice. Readers should consult a licensed advisor before making financial decisions.

Financy Team

May 03, 2025