Weekly Market Update (May 18, 2025)

HIGHLIGHTS

The US-China deal removed the worst-case scenario. S&P500 rose this week after the positive headlines over the last weekend. Markets are more optimistic as tariffs are lower, economic growth is better and the risk of recession is lower compared to previously expected.

Tariff: As the China tariffs cut significantly, we expect US to avoid a recession with lower inflation, allowing Fed to hold rates for longer. Markets should stay tuned as trade and fiscal policies are still fluid.

ECB: European Central Bank (ECB) is unlikely to have a rapid shift to an accommodative policy stance. It is mainly driven by the de-escalation of the global trade tension, which led to a small positive impact on growth in eurozone.

Data: US consumer price inflation did not reflect most of the tariff consequences. The inflation jump in appliance prices is a concern, which reflects companies anticipating the trade taxes.

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MARKETS

Nasdaq	19,211.10	+7.15%
S&P 500	5,958.38	+5.27%
Dow	42,654.74	+3.41%
10-Year	4.44%	+8bps
Brent	65.39	+2.30%
DXY	100.98	+0.56%

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

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VIEW FROM THE STREET

Equity

Goldman Sachs: S&P500 has rallied almost 20% from April’s low but the dispersion has been wide within the market. The remaining S&P 493 outperformed Magnificent 7 (+4% vs -5%) year-to-date. Dispersion in performance is also within Magnificent 7 with Microsoft down 3% while Tesla is down 29%.

UBS: Tech stocks should continue to rally, supported by the strong earnings growth and the tariffs headlines continue to improve. A diversified exposure across software, internet and semiconductor stocks would be favorable.

Fixed Income

Morgan Stanley: US Treasury has been running out of the Treasury General Account, and tax receipts through the summer are going to support government spending. Disappointment in tax bill or an increase in deficit would likely bias rates higher.

UBS: Fed fund futures are pricing 56bps cut by the end of year, down from 100bps cut two weeks ago. Although we believe the US can avoid a full-blown recession this year, the weakening job market and growth should allow the Fed to resume cutting in the next few months, likely starting in September.

Economy

Goldman Sachs: We believe that it is unlikely to enter a structural bear market. Valuations are high while the fundamentals are strong enough to support the valuations. With the tariff event now considered as resolved, the market is pricing out a recession risk.

Barclays: China property remains weak. Consumer sentiment is softer as the job market weakness still persists. After the US-China trade deal, we upgraded our GDP forecast for most of the Emerging Market (EM) in Asia except China.

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KNOWLEDGE TRANSFER

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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.