Stocks Close Little Changed as Tariff Chaos Starts to Ease

Performance for Week Ending 5.9.2025:

The Dow Jones Industrial Average (Dow) fell 0.2 percent, the Standard & Poor’s 500 Index (S&P 500) lost 0.5 percent, and the Nasdaq Composite Index (Nasdaq) finished off 0.3 percent. Sector breadth was mixed with six of the S&P sector groups closing higher and five closing lower. The industrials sector (+1.1 percent) was the best performer while healthcare (-4.3 percent) was the weakest.

*See below for Index Definitions

MARKET OBSERVATIONS: 5.5.2025  – 5.9.2025

The S&P 500 finished the week modestly lower as investors digested news on the trade front, the results of the FOMC meeting and a batch of first quarter earnings reports.

FOMC Meeting: As widely expected, the FOMC voted unanimously to hold rates steady at 4.25–4.50 percent at the conclusion of last week’s meeting. According to the after-meeting statement, the FOMC said “the risks of higher unemployment and higher inflation have risen.” Officials downplayed the negative reading on first quarter gross domestic product as reflecting “swings in net exports,” and continued to characterize economic activity as “solid.” During the after-meeting press conference, Fed Chair Jerome Powell downplayed negative sentiment data, emphasizing that while public concern over inflation and tariffs is real, there’s little evidence so far of major economic impact. Powell reiterated that the central bank need not be in a "hurry" to cut interest rates, flagging the broad uncertainty around economic conditions. "My gut tells me that uncertainty about the path of the economy is extremely elevated and that the downside risks have increased," he said, adding "there are cases in which it would be appropriate for us to cut rates this year, there are cases in which it wouldn’t. We just don’t know."

Investor Sentiment: As a contrarian indicator, investors sentiment continues to an asset. At the simplest level, investment decisions are driven by the emotions fear and greed. These emotions also tend to be contrarian in nature, meaning investors tend to be the most bearish (fearful) at/near market bottoms, and most bullish (greedy) at/near market tops. According to the AAII Investment Sentiment survey, published every week since 1987, investors have never been this consistently bearish. The bearish sentiment index has now been greater than 50 for 11 straight weeks. The prior record was in 1990 when bearish sentiment was above 50 for seven straight weeks. During the 2008 Global Financial Crisis the maximum was four and during the bear market of 2022 the maximum was five.

Q1 Earnings: Through Friday, 451 members of the S&P 500 have released fiscal quarter results with just over 77 percent beating expectations. Aggregate earnings for this group are up 12.3 percent, on track with the 12.5 percent projected growth rate for the overall quarter. On the sector level, Communication Services and Consumer Discretionary companies are posting the biggest upside earnings surprises, while the strongest growth rates are in the healthcare (+46.2 percent) and communication services (+30.7 percent). Full year growth rates have been trending lower in recent weeks due to the uncertainty surrounding the tariff situation. For 2025 the growth rate is currently estimated at 7.6 percent, down from 12.5 percent at the start of the year. For 2026 analysts are looking for growth of 13.2 percent down from 13.7 percent.

Economic Roundup: It was a relatively light week on the economic front. According to the Institute for Supply Management (ISM) the U.S. services sector expanded in April for the tenth consecutive month with the ISM Services PMI registering a reading of 51.6. The monthly gain was driven, in part, to the new orders component, which jumped to the highest level of the year. On the jobs front, a report released by the Labor Department showed first time claims for U.S. unemployment benefits saw a modest decline in the week ended May 3. The report said initial jobless claims dipped to 228,000, a decrease of 13,000 from the previous week's unrevised level of 241,000, erasing what appeared to be an Easter-driven spike during the prior week. The report was another sign that the labor market is still in a good place despite the tariffs. Meanwhile, the New York Fed’s consumer survey saw one-year forward inflation expectations stable at 3.6 percent, but with three-year forward expectations rising 0.2 percent to 3.2 percent, the highest level since July 2022, marking the latest in a string of survey data pointing towards pro-inflationary risks. Lastly, the U.S. trade deficit widened to a record in March as companies rushed to import products including pharmaceuticals as the Trump administration readied sweeping tariffs. The goods and services trade gap grew 14 percent from the prior month to $140.5 billion, commerce department data showed. The median estimate in a Bloomberg survey of economists was for a $137.2 billion deficit.

The Week Ahead: After a relatively light week of data reports, the economic calendar will be front and center this week, with investors focused on whether economic indicators to begin show the early impact of April's tariff announcements. The focal point will be Tuesday’s release of the Consumer Price Index (CPI) for April. According to Bloomberg, the headline CPI measure is seen rebounding 0.3 percent month-over month after falling 0.1 percent in March. The forecast for the core rate is for a 0.3 percent advance following the 0.1 percent print last month. Also expected to be watched very closely is Thursday report on April retail sales. After gaining 1.5 percent in March, economists are looking for a flat (0.0 percent) reading in April. Other notable indicators due out include the University of Michigan's preliminary consumer survey for May, regional Fed manufacturing surveys from New York and Philadelphia, Industrial Production and Housing Starts. It will be a busy week for Fed Heads eight speeches on the docket, including Fed Chair Powell on Thursday. The earnings calendar will continue to wind down with just 11 members of the S&P 500 expected to release results. Amongst this group will be retail-bellwether Walmart and tech concerns Cisco and Applied Materials.

— By Michael Schwager, Chief Market Strategist, Managing Director

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market Index^SM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500^© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.