Weekly Wrap

It was a short week of trading with the Memorial Day holiday on Monday, but the market started the week with a bang after President Trump announced a deferral of the 50% tariff rate for the EU until July 9 to allow more time to negotiate a trade deal. The S&P 500 surged 2.1% on Tuesday, but ended the week up 1.9%.

In brief, this week's gains were logged on Tuesday. The rest of the week was marked with sideways and choppy action as participants digested a number of other key developments, while contending with the notion that the market is sporting a premium valuation and is due for a period of consolidation.

NVIDIA's (NVDA) better-than-expected earnings report and outlook after Wednesday's close was one of the other key developments, along with a series of well-received 2-yr, 5-yr, and 7-yr note Treasury acutions, improved consumer confidence, and some confusing action on the tariff/trade front.

Late Wednesday, the U.S. Court of International Trade ruled that the president did not have the legal authority to enforce reciprocal tariffs. On Thursday, the U.S. Court of Appeals granted the White House's reques to temporarily reinstate the tariffs. On Friday, President Trump said China had violated the preliminary trade agreement worked out in Switzerland and noted "So much for being MR. NICE GUY!" before adding later that day that he hopes to be able to work things out with President Xi.

This week culminated with a 1.9% gain for the S&P 500, a 0.3% gain for the U.S. Dollar Index, and an eight basis-point decline in the 10-yr note yield to 4.42%. The month, meanwhile, was the best month for the S&P 500 (+6.2%) and Nasdaq Composite (+9.6%) since 2023.

Tuesday:

There was hardly any interference from sellers today, as the stock market rallied around a confluence of supportive developments. Stocks began on a high note and steadily added to their gains as the session carried on, benefiting from sidelined investors getting squeezed back into the action by a fear of missing out on further gains. The indices closed near their highs for the day.

There were three primary catalysts behind today's advance:

1. President Trump announced that he will be delaying the implementation of his recommended 50% tariff rate for the EU until July 9 to allow more time to negotiate a deal. This decision followed a phone call with European Commission President von der Leyen, who is reportedly wanting to accelerate trade talks now.
2. Treasury yields took a welcome step back, bolstered by reports that Japan is considering reducing its issuance of ultra-long bonds. The 10-yr note yield fell eight basis points to 4.43%, cutting below the closely watched 4.50% level, and the 30-yr bond yield dropped 10 basis points to 4.94%, moving below the closely watched 5.00% level.
3. The Consumer Confidence Index for May showed a solid jump to 98.0 (Briefing.com consensus 87.0) from a downwardly revised 85.7 (from 86.0) for April, as average 12-month inflation expectations eased from 7.0% to 6.5%.

These were the primary catalysts, but the consumer discretionary (+3.0%), information technology (+2.6%), and communication services (+2.1%) sectors were the main drivers of a broad-based rally effort that included the outperformance of the mega-cap stocks and small-cap stocks.

All 11 S&P 500 sectors finished higher, but only the three sectors mentioned above had a better return than the S&P 500. The smallest gainers were the utilities (+0.8%) and energy (+0.8%) sectors.

With the tariff temperature cooling for now, efforts to hedge for downside protection were tapered. The CBOE Volatility Index fell 13.6% to 19.25.

Today's session was controlled by buyers, evidenced by an A-D line that favored advancers by a better than 6-to-1 margin at the NYSE and by a better than 2-to-1 margin at the Nasdaq.

In other developments, the Treasury market digested a $69 billion 2-yr note auction in decent shape. The high yield of 3.955% stopped through the when-issued yield of 3.965% by a basis point, albeit on slightly weaker-than-average dollar demand. The U.S. Dollar Index was up 0.5% to 99.59.

Reviewing today's economic data:

• Total durable goods orders decreased 6.3% month-over-month in April (Briefing.com consensus -8.1%) following a downwardly revised 7.6% increase (from 9.2%) in March, with a 17.1% decline in transportation equipment orders acting as the key drag. Excluding transportation, durable goods orders rose 0.2% month-over-month (Briefing.com consensus 0.0%) following a downwardly revised 0.2% decline (from 0.0%) in March.
  • The key takeaway from the report is that there was a big dropoff in business spending, evidenced by the 1.3% decline in new orders for nondefense capital goods excluding aircraft.
  • March FHFA Home Price Index -0.1% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.0% (from 0.1%) in February.
  • March S&P Case-Shiller Home Price Index increased 4.1% yr/yr (Briefing.com consensus 4.4%) following an unrevised 4.5% increase in February.
• The Conference Board's Consumer Confidence Index jumped to 98.0 in May (Briefing.com consensus 87.0) from a downwardly revised 85.7 (from 86.0) in June, breaking a string of five consecutive months of decline.
  • The key takeaway from the report is that there was a clear connection between the increase in consumer confidence and the pause in the reciprocal tariff rates, which triggered a material rally in stock prices and improved forecasts for the economic outlook. Note: roughly half of the responses came after the May 12 news that the U.S. and China were pausing their respective reciprocal tariff rates.

Wednesday:

The stock market scored some big gains on Tuesday, but there was no follow-through on that effort today. The major indices trudged their way through Wednesday's session, weighed down by a lack of concerted leadership and a pervasive sense of wait-and-see in front of NVIDIA's (NVDA 134.81, -0.69, -0.5%) earnings report after the close.

In effect, it was a consolidation trade influenced by rising Treasury yields, an FT report that the Trump administration told semiconductor software design companies to stop selling to customers in China, and some festering valuation concerns.

All 11 S&P 500 sectors ended the day in negative territory. The biggest losers were the utilities (-1.4%), energy (-1.3%), and materials (-1.3%) sectors.

Small-cap stocks and the value factor also underperformed in a move that could be attributed in part to growth concerns, but to be fair, trading volume was relatively light on a day that saw the market cap-weighted S&P 500 break below 5,900 in late trading and close near its lows for the session.

There were some outliers in today's trade, namely Abercrombie & Fitch (ANF 88.47, +11.32, +14.7%) and Fair Isaac Corp. (FICO 1618.62, +115.01, +7.7%). The former reported better-than-expected earnings results, and the latter was upgraded to Outperform from Neutral at Robert W. Baird.

The tale of the tape, though, was one of weakness. Decliners led advancers by a 3-to-1 margin at the NYSE and by a 2-to-1 margin at the Nasdaq.

There was no U.S. economic data of note today, but it was reported before the open that the Mortgage Bankers Association's Mortgage Applications Index declined 1.2% week-over-week, with purchase applications up 2% and refinance applications down 7%.

Treasuries drew some buying interest after the report, but they eventually reversed course, with the 10-yr note yield scraping 4.50% and the 30-yr bond yield kissing 5.01% at their highs before backing down. The 10-yr note yield settled at 4.48%, while the 30-yr bond yield settled at 4.98%.

The Treasury market didn't react much to a $70 billion 5-yr note auction that was met with decent demand nor to the FOMC Minutes for the May 6-7 meeting, which conveyed increased uncertainty about the outlook and the potential for a difficult trade-off if inflation proves to be more persistent and the outlooks for growth and employment weaken. Those observations were interpreted largely by the market as being known and dated.

Thursday:

NVIDIA (NVDA 139.18, +4.37, +3.2%) was primed to be the center of the stock market's attention today after it delivered some impressive quarterly results and guidance following yesterday's close. Market participants, though, were forced to divert their attention to a couple of legal rulings regarding the Trump administration's tariff measures and a spate of weaker-than-expected economic data that stirred some growth concerns.

Specifically, the U.S. Court of International Trade got things started with a ruling that President Trump does not have the legal authority to enforce reciprocal tariffs. The White House did not waste any time appealing that ruling, and it became known late in today's trade that the U.S. Court of Appeals granted the White House's request to temporarily reinstate the tariffs.

That ruling keeps the 10% global tariff, the 30% China tariff, and the 25% Canada/Mexico tariffs in place. The court gave the Trump administration until June 9 to respond. What both rulings did, though, was inject more uncertainty into the market that kept overall buying and selling efforts in check.

The same can be said for the second estimate for Q1 GDP, which showed a downward revision for personal spending; jobless claims data that showed the highest level for continuing jobless claims since November 13, 2021; and a 6.3% decline in pending home sales for April.

That collection of reports helped fuel a stark reversal in the Treasury market, which saw the 10-yr note yield and 30-yr bond yield hit 4.53% and 5.03%, respectively, in the overnight trade, with some deficit angst acting as a selling catalyst (the administration has been highlighting the collection of tariffs as a resource for paying down the national debt).

The 10-yr note yield settled today's session at 4.43%, while the 30-yr bond yield backed up to 4.93%, further fortified by a $44 billion 7-yr note auction that was met with strong demand. The U.S. Dollar Index was down 0.5% to 99.39 after being up 0.7% in the overnight trade.

The push lower in yields was not met with a concomitant surge in stock prices, given that growth concerns were behind much of the improvement in the Treasury market. Those concerns were augmented by Best Buy (BBY 66.32, -5.20, -7.3%) cutting its FY26 guidance and Dow component, Salesforce (CRM 266.92, -9.11, -3.3%), posting earnings results that were accompanied by a deceleration in growth for many of its core cloud segments.

Still, NVIDIA's results, and the AI growth optimism that followed them, offered some influential support for the broader market. The S&P 500 traded down to 5,873 at its worst level of the day, but buyers were quick to show up to help it regain a posture above the 5,900 level where it closed.

Ten of the 11 S&P 500 sectors were higher, but none were up more than 1.0%. The real estate sector (+0.9%) led that pack, but it was the information technology sector (+0.6%) that did the heavy lifting. The communication services sector (-0.3%) was the only sector to finish with a loss.

While today's gains were modest, breadth figures convey an otherwise positive bias. Advancers led decliners by a better than 2-to-1 margin at the NYSE and by a nearly 13-to-9 margin at the Nasdaq.

Reviewing today's data:

• Initial jobless claims for the week ending May 24 increased by 16,000 to 240,000 (Briefing.com consensus 230,000), while continuing jobless claims for the week ending May 17 increased by 26,000 to 1.919 million, hitting their highest level since November 13, 2021.
  • The key takeaway from the report was the tandem jump in initial and continuing jobless claims, which denotes some increased layoff activity and some increased difficulty in finding a new job after being laid off.
• The second estimate for the Q1 GDP report showed a 0.2% decline in real GDP (Briefing.com consensus -0.3%) versus the 0.3% decline reported in the advance estimate. The GDP Price Deflator was unrevised at 3.7% (Briefing.com consensus 3.7%) following a 2.3% increase in Q4.
  • The key takeaway from the report is that it featured a downward revision to personal spending to 1.2% from 1.8% in the advance estimate, underscoring how the tariff uncertainty and inflation angst tempered consumer spending activity.
• April Pending Home Sales -6.3% (Briefing.com consensus -1.1%) versus downwardly revised 5.5% increase (from 6.1%) for March

Friday:

The stock market had a split personality on this final trading day of what was a great month. The morning session was governed by a defensive-minded disposition and some trade angst after President Trump said in a social media post that China had violated the preliminary trade agreement with the U.S. and added, "So much for being Mr. NICE GUY!"

That sent the major indices lower even though the Personal Income and Spending Report for April had some pleasing attributes that included a moderation in inflation and a robust increase in real disposable personal income. The indices dropped to session lows shortly after the start of the New York lunch hour on a Bloomberg report that the U.S. might impose additional technology-related sanctions on China.

The S&P 500 fell to 5,843, down 1.2% for the session, but managed to climb all the way back to positive territory in the afternoon session. It did so, driven by a buy-the-dip trade that has proven successful time and again since the April 7 low and bolstered by the president's acknowledgment in an Oval Office press conference that he will likely talk to President Xi and hopefully work things out.

The latter took the edge off some of the trade angst going into the weekend and presumably triggered some short-covering activity that supported the comeback effort.

The mega-cap cohort was not particularly strong today, but it was instrumental in the afternoon recovery. The Vanguard Mega-Cap Growth ETF (MGK), which had been down 1.5% as the S&P 500 hit its lows for the day, ended the session down 0.2%.

There wasn't a lot of overt strength in the stock market today, other than in individual stocks like Ulta Beauty (ULTA 471.46, +49.67, +11.8%) and Costco (COST 1040.18, +31.44, +3.1%), which reported earnings.

Costco carried the consumer staples sector (+1.2%) to the top of the sector leaderboard, where it held company with the utilities sector (+1.1%). The energy (-0.7%), consumer discretionary (-0.6%), and information technology (-0.4%) sectors were the only losing sectors today.

NVIDIA (NVDA 135.13, -4.06, -2.9%) and the semiconductor stocks came under some increased selling pressure. The Philadelphia Semiconductor Index dropped 2.1%, but to be fair, it was up 14.6% for the month coming into today's trade, placing it well ahead of the S&P 500 (+6.2%), which registered its best month since 2023.

Separately, Treasuries had a fairly stable outing that was accented with a slightly positive bias and shorter-dated securities outperforming longer-dated securities. Month-end rebalancing by pension funds (out of stocks and into bonds) was deemed to be a source of support.

• Reviewing today's economic data:
  
  Personal income increased a robust 0.8% month-over-month in April (Briefing.com consensus 0.3%) following an upwardly revised 0.7% increase (from 0.5%) in March. Personal spending rose 0.2% month-over-month, as expected, following an unrevised 0.7% increase in March. The PCE Price Index was up 0.1% month-over-month, as expected, which left it up a palatable 2.1% year-over-year versus 2.3% in March. The core-PCE Price Index was also up 0.1%, as expected, leaving it up 2.5% year-over-year versus 2.7% in March.
  • The key takeaway from the report is manifold: inflation rates are moderating, personal income growth is strong, and the personal savings rate picked up to 4.9% from 4.3% in March, which points to pent-up spending potential that will keep the economy on a growth track in the second quarter.
• The final University of Michigan Index of Consumer Sentiment for May increased to 52.2 (Briefing.com consensus 50.8) from the preliminary reading of 50.8. The final reading for April was also 52.2. In the same period a year ago, the index stood at 69.1.
  • The key takeaway from the report is that it ends four consecutive months of plunging declines in sentiment, although consumers still have concerns about their current personal finances and the future, with inflation expectations weighing.
• The May Chicago PMI dropped to 40.5 (Briefing.com consensus 45.0) from 44.6 in April.
• The Advance Intl. Trade in Goods Deficit narrowed to $87.6 billion from -$162.3 billion, Advance Retail Inventories were down 0.1% folliwing a 0.3% decline in March, and Advance Wholesale Inventories were unchanged following a 0.3% increase in March.