Weekly Wrap

The stock market had a strong showing this week. The S&P 500 (+4.6%) exited correction territory, rising 10.9% from its low close in April 8 (4,982.77). The Nasdaq Composite jumped 6.7% this week and the Dow Jones Industrial Average registered a 2.5% gain. 

Things started relatively weak as stocks dropped on Monday in response to chatter that President Trump and his team are looking into whether the president can remove Fed Chair Powell, which fostered concerns about attacks on the Fed's independence. Also, China warned of retaliation against countries that curtail their trade with China because of U.S. pressure in trade negotiations.

The mood shifted later in the week when President Trump declared that he has no intention of firing Fed Chair Powell. He also indicated he won't play hardball with China in any negotiations and that China's tariff rate will come down substantially (but not to zero) if a deal can be reached

The upside bias was aided by short-covering activity and contrarian-minded buying interest driven by reports of a pervasive bearish mindset. Outsized gains in the mega cap space contributed to the overall performance. The Vanguard Mega Cap Growth ETF (MGK) jumped 7.4%.

The outperformance of the mega caps was also reflected in S&P 500 sector performance. The technology sector bounced 7.9%, the consumer discretionary sector surged 7.4%, and the communication services sector rose 6.4%. 

The huge batch of earnings news this week was headlined by a few mega caps. Tesla (TSLA) saw an 18.1% increase after a dour Q1 earnings report that was tempered by Elon Musk indicating he will be curtailing his DOGE work. Alphabet (GOOG) shares jumped 6.8% after reporting earnings.

This week also featured pleasing price action in the Treasury market, providing added support to equities. The 10-yr yield was six basis points lower than last week at 4.27% and the 2-yr yield was four basis points lower than last week at 3.76%.

Monday:

The stock market tumbled right out of the gate to start the new week. Major equity indices remained in a steady decline through most of the session. The Dow Jones Industrial Average dropped 970 points, the Nasdaq Composite closed 2.6% lower than Thursday, and the S&P 500 logged a 2.4% decline.

The continuation of last week's selling was driven by deepening concerns about trade policy and fresh political pressure on the Federal Reserve. A warning from China urging nations to steer clear of U.S. trade deals that could disadvantage Beijing, along with talk that President Trump’s team is exploring whether he can lawfully remove Federal Reserve Chair Jerome Powell was at the heart of the market narrative.

The warning from China piles onto existing worries about the trade war situation and the news about the Trump administration calls into question the stability of the central bank's longstanding independence.

Reviewing Monday's economic data:

• March Leading Indicators -0.7% (Briefing.com consensus -0.4%); Prior was revised to -0.2% from -0.3%

Tuesday: 

The stock market entered Tuesday with a rebound on its mind, and that is precisely what it achieved, making up the entirety of Monday's losses and then some. There wasn't a news trigger for the early gains, yet that changed in the early afternoon when Bloomberg reported that Treasury Secretary Bessent said he expects the China tariff situation to de-escalate.

That news fostered some hope that the current trade impasse between the U.S. and China will get resolved, although it would be remiss not to add that negotiations haven't even started and that there was no substance to the comments. It was simply a change in tone that registered for a market that was already up sharply. In fact, the vast majority of the gains were logged before the Bessent report.

The initial rally effort was aided by short-covering activity and contrarian-minded buying interest driven by reports of a pervasive bearish mindset. To that end, the level of bearish sentiment among individual investors has exceeded 50% for eight straight weeks, which is the longest such streak for records dating back to 1987, according to the American Association of Individual Investors.

The rebound bid also gathered momentum with the U.S. Dollar Index (+0.7% to 98.97) rallying and the 10-yr note yield sliding two basis points to 4.39% despite a weak 2-yr note auction.

There was no U.S. economic data of note on Tuesday. 

Wednesday:

The stock market registered solid gains, building on Tuesday's rally. The major equity indices closed off their highs, but maintained gains between 1.1% and 2.5%. The Nasdaq Composite traded up as much as 4.5% at its high, settling 2.5% higher than Tuesday.

The market is feeling good about recent commentary from the president, indicating that he has no intention of firing Fed Chair Powell and that he will not "play hardball" in trade talks with China, adding that tariff rates will come down substantially if the two sides reach a deal.

Positive price action in stocks that reported earnings also boosted sentiment. Tesla (TSLA) was a standout in that respect, and shares jumped despite disappointing Q1 results. The positive response follows comments from Elon Musk indicating he will be curtailing his DOGE work.

Dow component Boeing (BA) was another big earnings-related winner.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index -12.7%; Prior -8.5%
• April S&P Global US Manufacturing PMI - Prelim 50.7; Prior 50.2
• April S&P Global US Services PMI - Prelim 51.4; Prior 54.4
• March New Home Sales 724K (Briefing.com consensus 684K); Prior was revised to 674K from 676K
  • The key takeaway from the report is that new home sales in March were aided by several factors that included better weather, more stable mortgage rates, and lower prices, but questions will remain about the sustainability factor given the jump in mortgage rates and stock market losses that have been seen in April.

Thursday:

The stock market rallied for the third consecutive session. The Dow Jones Industrial Average jumped nearly 500 points, the S&P 500 registered a 2.0% gain, and the Nasdaq Composite gained 2.7%.

With Thursday's move, the S&P 500 is 10.1% above its low close in April 8 (4,982.77). Short-covering and a fear of missing out on further gains contributed to the upside moves, boosted by strength in the mega cap and chipmakers spaces.

The PHLX Semiconductor Index (SOX) surged 5.6% and the Vanguard Mega Cap Growth ETF (MGK) rose 3.1%

Earnings news since yesterday's close has been a mixed bag.

Reviewing Thursday's economic data:

• March Durable Orders 9.2% (Briefing.com consensus 1.5%); Prior 0.9%, March Durable Goods -ex transportation 0.0% (Briefing.com consensus 0.3%); Prior 0.7%
  • The key takeaway from the report is that there was a rebound in nondefense capital goods, excluding aircraft, which rose 0.1% following a 0.3% decline in February. This is indicative of a modest pickup in business spending, albeit before the reciprocal tariff upset on Liberation Day. New orders for primary metals increased 0.7% following a 1.3% increase in February.
• Weekly Initial Claims 222K (Briefing.com consensus 220K); Prior was revised to 216K from 215K, Weekly Continuing Claims 1.841 mln; Prior was revised to 1.878 mln from 1.885 mln
  • The key takeaway continues to be found in the leading indicator of initial jobless claims, which continue to run at low levels that are nowhere close to being associated with a recession.
• March Existing Home Sales 4.02 mln (Briefing.com consensus 4.20 mln); Prior was revised to 4.27 mln from 4.26 mln
  • The key takeaway from the report is that existing home sales declined month-over-month in all regions, while the median selling price increased month-over-month in all regions, signaling the affordability constraints buyers are facing with higher prices and relatively higher mortgage rates.

Friday:

The stock market closed a winning week on a high note. The major equity indices overcame early selling pressure to finish in the green near session highs. The S&P 500 settled 0.7% higher and the Nasdaq Composite rose 1.3% while the Dow Jones Industrial Average lagged its peers, rising 0.1% from yesterday.

Mega cap stocks provided significant support to the broader equity market. Alphabet (GOOG) was among the winners after reporting earnings, as was Tesla (TSLA), which continued its post-earnings rally. The Vanguard Mega Cap Growth ETF (MGK) jumped 1.7%.

The price action in Treasuries, along with this morning's economic data, contributed to the upside bias in the stock market. The final April reading of the University of Michigan Index of Consumer Sentiment rose to 52.2 (Briefing.com consensus 48.5) from the preliminary reading of 50.8. However, even with that uptick, consumer sentiment remains at levels last seen as the world emerged from the coronavirus pandemic with year-ahead inflation expectations (6.5%) at a level not seen since 1982.