Weekly Market Performance — May 16, 2025

Markets Blog

David Matzko, LPL Research

LPL Research provides its Weekly Market Performance for the week of May 12, 2025. Major U.S. averages ended the week sharply higher after China tariffs were lowered significantly. Enthusiasm for artificial intelligence (AI) investment and some reassuring inflation data also contributed to the bullish sentiment. Overseas, European and Asian markets ended broadly higher but were not able to keep up with the technology-led U.S. rally. The U.S. 10-year Treasury yield ended three basis points lower despite the improved trade outlook and just two Federal Reserve (Fed) rate cuts priced into bond markets.

Index Performance

U.S. and International Equities

U.S. Equities: After churning last week to end little changed, major averages bounced back over the last five days with strong gains. Risk appetite received a meaningful lift following last Saturday’s “very robust and productive” trade meeting between the U.S. and China, in the words of Treasury Secretary Scott Bessent. The world’s two largest economies agreed to lower tariff duties for 90 days, slashing the U.S. rate on China from 145% to 30%, with Chinese levies on the U.S. dropping from 125% to 10%; a more aggressive cut than anticipated. Continued progress toward a reconciliation tax bill also buoyed investor sentiment while institutional investors hurt by overly defensive positioning in recent weeks rushed to get back onsides, helping spark the sharp rally and putting the S&P 500 more than 19% above its April 8 low.

Big tech names powered this week’s advance, propelling the S&P 500 back into positive year-to-date territory amid trade de-escalation optimism. Upbeat AI headlines around Saudi Arabian firm Humain’s data center project and easing chip export regulations further supported the advance. Cooler-than-expected April consumer and wholesale inflation data also contributed to the risk-on mood, tempering concerns of immediate tariff-related impacts while suggesting economic cooling is measured. On the corporate front, Walmart (WMT) delivered solid first quarter results, but shares fell on warnings of tariff-related price hikes. Regulatory and fraud concerns at UnitedHealth (UNH) weighed on the healthcare sector, the week’s biggest laggard.

International Equities: International and emerging market (EM) equities gained ground this week but were unable to keep up with the surge in U.S. equities. High tariffs hurt U.S. markets more than their international counterparts, so it’s logical that once the market prices in a more benign tariff regime, the U.S. market would benefit most. In addition, the rest of the developed world has far less technology exposure, making a tech-led U.S. market rally tough to match. That helps explain why the MSCI EM Index outperformed the developed international MSCI EAFE Index less this week. U.S. dollar gains also acted as a headwind.

European stocks were broadly higher this week, benefiting from the ratcheting down of trade tensions and some encouraging German business sentiment data. As the week ended, no material progress was evident in Russia-Ukraine negotiations, as Putin only offered lower-level Russian representatives in talks with Zelenskyy and his top military leaders. U.K. GDP exceeded expectations, while U.K. Prime Minister Keir Starmer expressed confidence in negotiations to reset U.K.-Eurozone relations. Leading European markets included the Netherlands, Sweden, and Spain.

Turning to Asia, the 90-day pause for reciprocal tariffs in China helped bolster Asian markets broadly. However, despite the significant benefit of lower tariffs to the Chinese economy, China’s equities could not match their U.S. counterparts this week. Taiwan’s semiconductor-heavy market did keep up with the U.S. on relaxed chip export restrictions by the U.S. and announcements of significant AI investment from the Middle East. Reports of Apple (AAPL) shifting iPhone production from China to India and reports of India’s willingness to drop tariffs to zero helped drive a strong week for India’s market. Major Japanese equity benchmarks ended little changed for the week as hopes for an imminent trade deal with the U.S. faded. Japan’s TOPIX Index ended a 13-day winning streak, and the Japanese economy contracted in the first quarter for the first time in a year.

Fixed Income, Currency, and Commodity Markets

Fixed Income: The Bloomberg U.S. Aggregate Index was volatile but ultimately ended up slightly positive for the week. The rate-sensitive two-year yield traded in a 16 basis points (0.16%) range during the week but ended roughly three basis points (0.03%) lower than when the week started. The 10-year yield ended up roughly three basis points lower as well. Federal Reserve (Fed) rate cut expectations continue to be volatile, with markets only expecting two cuts this year (down from four cuts to start the month).

Perhaps lost in all the drama of tariff negotiations as of late, Treasury Secretary Scott Bessent also announced recently that the federal government was set to run out of money to pay its bills sometime in August. According to Bloomberg, the U.S. Treasury has $95 billion in extraordinary measures and $583 billion in the Treasury General Account to help pay government bills, and markets are starting to price in, however remote, the chance of a delayed payment on certain Treasury securities. Bills maturing in August are becoming cheaper relative to the rest of the curve, with late August securities yielding a few basis points more than bills maturing in July or September, as money market funds avoid these maturities due to the debt ceiling uncertainty. If the U.S. runs out of borrowing capacity, investors who hold debt that’s due to be repaid shortly afterward are among those most immediately exposed to delayed payment. Recent discussions related to the Republicans’ “big, beautiful bill” suggest the government will need to raise the debt ceiling by as much as $5 trillion (although that number is fluid), which would potentially take Treasury debt outstanding to over $41 trillion. To be clear, it’s very likely the government will act in time, just as it has every other time debt ceiling discussions have taken place, but volatility will likely remain in the interim.

Commodities and Currencies: The Bloomberg Commodities Index fell over 1.5% this week as price action remained stuck between the 50- and 200-day moving averages (dmas). A rebound in the dollar, a drop in natural gas, and selling pressure in precious metals weighed on the broader commodities complex. Gold shed 4% and broke down from a short-term double top as investors rotated into higher beta assets. Copper failed to catch the risk-on rotation and slid 1.3%, marking a third straight weekly decline. The industrial metal has had a limited response to renewed risk appetite and recent stockpile drawdowns. In energy, West Texas Intermediate crude oil rose 2.5% as geopolitical tensions in the Middle East escalated and Iran pushed back against an imminent nuclear deal with the U.S. Natural gas tumbled nearly 12% as storage levels continued to build and forecasts called for below-average cooling demand. Currency markets remained volatile, with the U.S. Dollar Index climbing for a fourth straight week. A close above 102 would suggest the recent rebound off oversold levels is likely more than just a relief rally.

Economic Weekly Roundup

Home Improvement Retailers Post Outsized Gain. April retail sales rose 0.1% after rising a revised 1.7% month-to-month in March as buyers splurged before any new tariffs were enacted. After the biggest monthly surge since early 2023, retailers posted another monthly gain in sales. The biggest contributor in April was restaurant spending, a sign that consumers are willing to allocate toward discretionary spending. Demand for home improvement has skyrocketed, as households stay put given the abnormalities of the housing market. Retailers for building materials posted the biggest gains since 2022.

Retailers in the home improvement space are benefiting from strong demand for renovations and home improvements. Given the abnormalities in the housing market, we should expect that to continue if the labor market holds. Steady consumer incomes should support discretionary spending, adding to the likelihood that the Fed can stay on hold as long as growth prospects remain stable.

Annual Inflation Decelerated in April. Consumer prices decelerated to 2.3% on an annual basis after rising less than expected in April, Bureau of Labor Statistics data showed on Tuesday morning. Consumer prices rose 0.2% from a month ago after falling 0.1% in March. Medical care and auto insurance prices continue to rise, putting acute pressure on consumers. Airfare, car prices, and clothing prices were among the categories that decreased in April. The April change was the smallest annual increase since February 2021.

Improvements in global trade will provide some clarity on the future path of inflation. However, the uncertainty about what might happen after these temporary trade deals makes things difficult for the Fed since stagflation remains a risk. If the fog does not clear, the Fed might not be able to adjust policy in June. The Fed’s strategy would change if inflation expectations get unhinged. The spike in the University of Michigan’s inflation expectations is not unusual but worrisome. The expectations data spiked in 2008 and 2011, yet core inflation did not follow.

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: Leading Index (Apr)

• Tuesday: Philadelphia Fed Non-Manufacturing Activity (May)

• Wednesday: MBA Mortgage Applications (May 16)

• Thursday: Chicago Fed National Activity Index (Apr), Initial Jobless Claims (May 17), Continuing Claims (May 10), S&P Global U.S. Manufacturing, Services, and Composite PMIs (May preliminary), Existing Home Sales (Apr), Kansas City Fed Manufacturing Activity (May)

• Friday: New Home Sales (Apr), Kansas City Fed Services Activity (May), Building Permits (Apr final), Bloomberg U.S. Economic Survey (May)

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

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This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

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