US Equities Recoup April’s Losses

For the week ending 2 May 2025

As of midday Friday, global equities were higher on the week amid solid earnings reports, hopes for a de-escalation in the trade war between the US and China and resilient US labor data. The yield on the US 10-year Treasury note was little changed compared with last week at 4.27% but rose about 0.15% from the lows of the week after the release of soft US GDP data. The price of a barrel of West Texas Intermediate crude fell back to $58.50 from $62.50 the week before while volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 23 from 27.

MACRO NEWS

US labor market remained resilient in April

US nonfarm payrolls rose 177,000 in April, exceeding all forecasts in the Bloomberg survey. However, the prior two months data were revised lower by 58,000 jobs. The report is consistent with the recent trend of hard economic data outstripping survey-based readings amid an uncertain policymaking environment. The unemployment rate held steady at 4.2%, and the labor force participation rate edged up to 62.6 from 62.5. Average hourly earnings rose 0.2% from the month before, a bit lower than forecasts. The federal workforce declined by 9,000 in April. Overall, a relatively resilient labor market should allow the US Federal Reserve to remain on the sidelines as it waits for the dust from the ongoing trade war to settle.

Tariff front-running prompts US growth slump

A preliminary reading of Q1 US gross domestic product showed that the economy contracted 0.3% on the quarter as a pretariff surge in US imports detracted from otherwise solid consumer demand. While imports surged, inventory growth didn’t keep pace, suggesting that subsequent Q1 data could be revised higher. US consumer demand was lower in Q1 than at the end of 2024 but beat lowered expectations. Personal consumption grew at a 1.8% annual rate in the first three months of the year, down from the 4% pace at the end of last year. Economists expected only a 1.2% pace of consumption growth.

Trump tweaks auto tariffs

Compared with recent weeks, there were relatively few twists and turns on the tariff front this week, though US President Donald Trump somewhat lightened the tariff burden on automakers. Trump signed an executive order that removed the stacking tariffs on one another and removed the 25% levy on steel and aluminum used in autos. Foreign automakers are now eligible for a 15% offset to the 25% import tariff in year one, decreasing to 10% in year two and then eliminated in year three, among other measures. Analysts say the modifications incentivize the final assembly of vehicles in the US and significantly reduce the tariff burden for OEMs and suppliers. Meanwhile, the administration touted progress toward trade deals with India, Japan and South Korea.

China signals it is open to trade talks

While neither the US nor China wants to be seen as making the first move in initiating trade talks, China is believed to have signaled that it is open to talks with the United States. The Financial Times reported that an account associated with Chinese state media said Wednesday that there would be “no harm” in holding trade talks with the Trump administration, indicating a softening of Beijing’s position as both sides look for a way out of the trade war. The posting came just hours after purchasing managers’ data showed that new export orders fell to 44.7 in April from 49.0 in March amid ongoing trade strife. On Friday, Stephen Miran, head of the White House Council of Economic Advisers said “it’s in the interest of both economies to lower the temperature, to create breathing space to continue talking, to figure out how we can get to a new stable equilibrium on trade.”

QUICK HITS

As of Friday’s open, the S&P 500 Index had erased the early April 13.8% drop amid solid earnings reports, hopes for a lessening of the US–China trade friction, and resilient US labor data.

Global manufacturing purchasing managers’ indices generally held up better than expected in April despite ongoing tariff uncertainty. The Institute for Supply Management’s measure fell marginally to 48.7 from 49.0 in March. In China, the PMI fell to 49.0 from 50.5. In Japan, it rose to 48.7 from 48.4. In the eurozone it ticked up to 48.7 from 48.6, and to 45.4 from 44.9 in the United Kingdom.

The Fed’s preferred inflation measure, core PCE, was unchanged month over month in March and fell to 2.3% year over year from 2.7% in February, suggesting US inflation continued to trend lower ahead of the tariff shock in early April.

Canada’s Liberal Party, led by Prime Minister Mark Carney, fell three seats short of an absolute parliamentary majority after winning its fourth-straight general election. Carney and Trump are set to meet in person for the first time on Tuesday at the White House.

China will exempt some US imports from tariffs that it can’t immediately source elsewhere, including semiconductors, chipmaking equipment, medical products and aviation parts. Beijing also announced policies to support exporting companies and boost domestic consumption to counter US tariffs.

After months of negotiations, Ukraine and the US on Wednesday signed a deal that will give the US preferential access to Ukrainian minerals and fund investment in Ukraine’s reconstruction.

Spain and Portugal experienced widespread power outages on Monday. The cause of the failure hasn’t yet been established.

The Case-Shiller national home price index rose 3.9% year over year in February.

The Conference Board’s US consumer confidence measure in April slid to 86.0 — its lowest level in nearly five years — from 93.9 in March.

The US employment cost index remained muted in the first quarter, gaining 0.9% from the quarter before, suggesting wage inflation remains in check.

The minutes of the 16 April Bank of Canada meeting showed that policymakers debated cutting rates 0.25% before opting to hold them steady at 2.75%.

As budget negotiations intensify among Republican lawmakers, Steve Scalise (R-LA), the majority leader of the US House of Representatives, said Wednesday that he opposes raising taxes on the wealthy. Scalise said he wants to avoid raising anyone’s taxes. GOP negotiators are searching for ways to offset the cost of the proposed tax cuts President Trump promised during his election campaign.

The Bank of Japan held interest rates steady on Thursday but cut its economic growth forecast for the fiscal year ending March 2026 to 0.5% from the 1.1% projected three months ago amid a hit to exports from US tariffs.

Bloomberg reported Thursday that the European Union is preparing to offer the US lower trade and nontariff barriers, boosting European investments in the US, cooperating on strategic challenges such as tackling unfair competition and China’s steel overcapacity, and purchasing US goods like liquefied natural gas and technologies.

President Trump’s 2026 budget proposal, released Friday, would cut government spending by $163 billion. The outline contains $557 billion in nondefense discretionary spending.

EARNINGS NEWS

With about 71% of the constituents of the S&P 500 Index having reported for Q1 2025, blended earnings per share (which combines reported data with estimates for those that have yet to report) show that earnings rose around 13% compared with the same quarter a year, according to data from FactSet. Blended sales rose 4.9% year over year.

THE WEEK AHEAD

Monday: eurozone investor confidence, US services and composites PMIs

Tuesday: eurozone and UK services and composite PMIs

Wednesday: Japan services and composite PMIs, eurozone retail sales, Fed meeting

Thursday: Bank of England meeting, US Q1 productivity, NY Fed inflation expectations

Friday: Canada employment report

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Past performance is no guarantee of future results.

Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research, CNBC.com.