RECAPPING LAST WEEK

Volatility returned as rising interest rates and fresh tariff threats sent U.S. equity indices lower for the week. The S&P500 and Nasdaq Composite index each slumped 2.5%, while the Russell 2000 tumbled 3.5%. International equities fared better, with the MSCI EAFE index posting a 1.3% gain. All S&P500 sectors finished in the red, with technology sliding 3.4% after the White House targeted Apple with a 25% tariff for iPhones sold but not manufactured in the U.S. The energy sector plunged 4% as crude oil prices remained under pressure from looming production increases. Gold futures jumped 5%, boosted by a sinking U.S. dollar and a new wrinkle in the trade wars—a proposed 50% levy on European Union goods. Bitcoin soared to a new record high near $112,000 before pulling back to end the week with a 5% gain. The continued selloff in longer-dated U.S. Treasury bonds pushed yields up—the 30-year rate reached 5.15%, its highest level since 2007. A weak 20-year auction and concerns over rising budget deficits were contributing factors. Turning to economic data, U.S. business activity improved this month, although price pressures persisted. The S&P Global flash PMI composite index edged up to 52.1, lifted by a surge in new manufacturing orders. Sales of new U.S. homes rose 10.9% in April, spurred by lower
prices and higher incentives for buyers. The increase in the median price of existing homes saw the slowest appreciation in nearly two years. In corporate earnings news, Home Depot missed profit expectations but stuck to its previous guidance numbers, while Target slashed its forecast after posting a sharp decline in same-store sales. Overseas, China’s industrial production increased more than expected last month, though weaker retail sales reflected continued domestic consumption challenges. China’s central bank reduced its benchmark lending rates for the first time since October as policymakers sought to buffer the economic impact from trade conflicts. The Reserve Bank of Australia cut rates by 25 basis points to 3.85%, and investors anticipate two additional cuts later this year. Japan’s core CPI jumped the most in two years, rising to 3.5% YoY in April and supporting a Bank of Japan rate hike in July. The UK also suffered a larger-than-expected inflation spike last month, potentially further slowing the country’s already gradual rate-cutting pace. Canada’s annual inflation rate fell to 1.7% as energy prices dropped, but core measures remained higher. Finally, the European Central Bank, in its Financial Stability
Review, said a “fundamental regime change” could be underway, with investors reassessing the risk of U.S. assets. Business PMI surveys from the Eurozone showed a drop in services activity, previously the bloc’s main economic growth driver.

THE WEEK AHEAD

A shortened week awaits as U.S. markets were closed on Monday for the Memorial Day holiday. Investors will return from the three-day weekend wary of any fallout from last week’s tariff announcements and several important economic releases coming this week. In the U.S., minutes from the recent FOMC meeting come out Wednesday, followed by the second estimate of Q1 GDP on Thursday. April’s core PCE price index arrives Friday, though little change is expected, as any inflationary impact from tariffs will take time to feed into the calculation. Technology bellwether Nvidia will report earnings Wednesday after the market closes. Other releases on the domestic economic calendar include durable goods orders, trade balance figures, pending home sales, and May’s revised consumer sentiment reading, along with inflation expectations. On the international side, inflation updates are on the agenda in Australia, Japan, and Germany. Last of all, China’s manufacturing and services PMIs will be released Friday evening.