Weekly Market Update (May 11, 2025)

Market Hedwig
6 days ago
3 min read

Updated: 5 days ago

HIGHLIGHTS

Markets are optimistic about the trade negotiations. S&P500 moved slightly this week. Fed kept the rate unchanged and provided little guidance.

Earnings: Q1 earnings results are strong. However, the results also underscore the risk of supply shock induced by the tariff in the coming months. Some managements indicated their intention to build inventories while the inventory-to-sales ratio keeps falling.

Trade Deal: The handshake UK trade deal suggests the tariff rate floor for upcoming trade agreements would be 10% with limited exceptions. The US-UK trade deal will likely be the first in a series, followed by Japan, Korea, Vietnam and India. Eventually, China and Europe. However, tariffs are likely to remain at a high level and the final agreements are still unclear.

Mortgage: The long-end treasury yield is likely to hurt homebuyers. The 30-year mortgage rate decoupled from its typical correlation with 30-year treasury yield. It is mainly driven by the weakness in housing market which pushed down the fixed-rate financing for around 50bps year-to-date. However, the mortgage rate is going to be high even if economic growth slows or Fed cuts. The affordability problem of homeownership will still persist.

MARKETS

Nasdaq	17,928.92	-0.27%
S&P 500	5,659.91	-0.47%
Dow	41,249.38	-0.16%
10-Year	4.36%	+4bps
Brent	63.92	+4.05%
DXY	100.42	+0.38%

*Data as of market close. 5-day change ending on Friday.

VIEW FROM THE STREET

Equity

Goldman Sachs: Although the earnings results are strong, the proportion of companies that beat earnings per share (EPS) expectations was not high compared to the recent quarters. 52% of companies beat EPS expectations by at least one standard deviation. It is better than the average of 48% since 1998 but lower than the average of 57% in the past two years.

Morgan Stanley: Magnificent Seven stocks dropped a lot in the last four months. Earnings revisions are negative and the free cash flow (FCF) growth is also turning negative. However, many investors are happy to buy them at discount. Amid the stabilizing global growth expectation and interest rate in US, the comeback may be running out of steam.

Fixed Income

UBS: Recent development has increased political risk premium on US treasuries, resulting in a higher yield. We believe US treasuries will perform well if US economic growth slows down.

Standard Chartered: Latest Fed meeting emphasized that they are cautious about implementing easing policy too early amid the likely inflationary impact from tariffs. However, we expect them to start cutting rate in the second half of this year as economy continues to soften and job market is cooling down. Thus, 10Y yield above 4.25% is attractive.

Economy

Goldman Sachs: We expect a 45% probability of US recession in the next 12 months. Markets are focusing on the optimistic side of the outlook due to the recent resilient earnings, favorable economic data and positive development on tariffs.

J.P. Morgan: Productivity of workers dropped, indicated by the drop in real output divided by total working hours. Companies are hesitant to decrease size of workers even if the economy contracts. The decision is even harder these days as growth prospects hinge on the uncertain policies.

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DISCLOSURE

This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.