Weekly Market Performance — May 9, 2025

Markets Blog

David Matzko, LPL Research

LPL Research provides its Weekly Market Performance for the week of May 5, 2025. Major U.S. averages ended lower after snapping a historic winning streak to start the week. The first U.S. trade deal since the April 2 reciprocal tariff announcement that roiled global markets was supportive for markets, but trade angst lingered ahead of a key trade meeting set for this weekend. Overseas, European and Asian markets ended mostly higher in a holiday-shortened trading week, as trade developments continued to drive global equities. Treasury yields ended little changed after reversing a mid-week drop, while commodities staged a broad rebound.

Index Performance

U.S. and International Equities

U.S. Equities: Following back-to-back weekly gains, U.S. stocks ended broadly lower this week as investors grappled with improving trade-related headlines but lingering uncertainty and little overall trade clarity. Losses were measured, with all three major averages ending modestly below the unchanged point. Value names outperformed their growth counterparts, while small caps outperformed, with the Russell 2000 small cap index ending flat.

Trade angst remained the primary market driver again this week, with volatile tariff headlines sending stocks in both directions. The S&P 500 snapped a historic nine-day rally on Monday after remarks from the White House indicated U.S. and Chinese officials did not have a meeting yet, and on concerns that trade deals will be hard to come by after Washington rejected Japan’s full tariff exception request. However, both concerns and equity markets received relief after reports indicated that American and Chinese officials will meet over the weekend in Switzerland and the first trade agreement was signed. Underpinned by the developments, stocks gained ground after President Trump and British Prime Minister Keir Starmer unveiled a trade framework, with investors also noting remarks from the U.S. President that talks with China will be substantive if all goes well. However, Wall Street ended the week on a cautious note ahead of the meeting between the world’s two largest economies.

Outside of trade developments, equities had a relatively muted reaction to the Federal Open Market Committee (FOMC) leaving rates unchanged in Wednesday’s policy decision, as expected. Choppy trading ensued Wednesday after Federal Reserve (Fed) Chair Jerome Powell reiterated the central bank’s wait-and-see posture, noting risks unemployment and inflation — both sides of the Fed’s dual mandate.

International Equities: European equities ended slightly higher following early-week holiday-thinned trading. Stocks lacked a firm direction as market chatter continued to bounce between the stronger-than-expected first quarter earnings season and developing trade headlines ahead of the U.S.-U.K. deal announcement. British stocks edged lower despite the agreement as investors parsed hawkish leaning remarks from the Bank of England (BOE) following a 0.25% rate cut on Thursday. Meanwhile, the German DAX Index became the first within the region to top its March record high, overcoming a brief drop on Tuesday after conservative party leader Friedrich Merz’s bid to become Chancellor unexpectedly failed in parliament’s initial vote, before passing shortly thereafter.

Asian stocks ended a holiday-shortened week for most major markets mostly higher on the back of trade-bolstered sentiment. Optimism around U.S.-China trade talks and the overall softer tone from the White House lifted equities, while solid weekly gains for mainland China and Hong Kong were also supported by another People’s Bank of China (PBOC) rate cut and expansion of lending facilities for consumers and services. Taiwan climbed back above the week-to-date flatline Friday following strong sales data from Taiwan Semiconductor (TSM), while the tech-leaning market of Japan also gained ground. Australia ended little changed and New Zealand rallied, while India and Pakistan ended sharply lower as uncertainty continued to mount around the intensifying military conflict between the two countries.

Fixed Income, Currency, and Commodity Markets

Fixed Income: The Bloomberg U.S. Aggregate Index ended with a small loss this week, reversing mid-week gains as traders pared back Fed rate cut bets, sending yields sharply higher Thursday. Treasuries rose Tuesday (yields lower) after the Treasury Department’s latest auction of 10-year notes drew strong demand, dampening concerns around a buyers strike for longer-duration Treasuries spurred by the Trump administration’s tariff agenda. Gains were extended following the FOMC’s decision to hold rates steady, but Treasuries tumbled Thursday as traders trimmed rate cut bets after digesting Fed Chair Powell’s patient remarks around future cuts and on strong jobless claims data. Thursday’s slide was exacerbated after President Trump pushed investors toward riskier assets in the press conference following the U.S.-U.K. trade deal announcement from the Oval Office. Treasuries were little changed in the final session of the week, trading in a narrow range as stocks chopped along on easing tariff tensions.

Commodities and Currencies: The Bloomberg Commodities Index ended higher this week, as the broader commodities complex bounced back from back-to-back weekly declines. West Texas Intermediate (WTI) crude staged a rebound from recent weakness this week on potentially improving U.S.-China trade tensions, overcoming downward pressure from ongoing increased production plans from OPEC+. However, recent developments around Iraq and Saudi Arabia raising prices for June crude deliveries in Asia have suggested the price war between OPEC+ members may be de-escalating, supporting oil. Gold rose off recent lows experienced last week, clinging to a solid gain after investors rotated toward risky assets on Thursday following remarks from President Trump. Trade deal optimism also weighed on prices, but dollar weakening on Friday buoyed the yellow metal ahead of Saturday’s meeting between the U.S. and China. Despite Friday’s drop, the dollar held on to a small weekly gain, supported by the Fed’s decision to leave rates unchanged and enthusiastic remarks from the White House on Thursday.

Economic Weekly Roundup

Greater Uncertainty, But Balanced Risks. The FOMC warned that uncertainty has risen since the last meeting. But still no change in target rates since troubling risks remain on both sides of the dual mandate. The policy-setting committee unanimously decided to keep rates unchanged despite the rising uncertainty around the economic outlook. Both sides of the dual mandate – that of price stability and full employment – have greater risks from rising trade tensions. The committee will continue to reduce its balance sheet at the slower pace instituted in April.

The Fed is worried about both parts of their dual mandate, making things especially difficult amid trade uncertainty. Now its up to investors to bet on which poses the greater risk. Since small businesses are the driving engine for job growth, inefficient and overbearing trade policy could weaken the labor market even as prices rise. The future course of monetary policy in the near term is hazy given the risk of stagflation.

April Orders Expanded for Several Industries. Several industries, including accommodation and food services, wholesale trade, and retail trade reported an increase in new orders for the month of April. This is an encouraging sign that despite the trade uncertainty, businesses were gaining new orders. ISM Services rose to 51.6 from 50.8 in March (readings above 50 indicate expansion). New orders expanded for the 10th consecutive month after contracting in June for just the second time since May 2020. Employment activity in the services sector contracted in April for the second straight month. We should expect further downside risk to next month’s payroll report from cuts in the federal government. Prices paid rose the highest since January 2023, indicative of nagging inflation pressures.

Inflation, especially within the services sectors, will put Fed policy makers in a tight spot for the coming meetings. Stagflation – a period of low or no growth coupled with sticky inflation – continues to be a factor in the Fed staying pat. However, a slowing job market could ease demand-induced inflation throughout the balance of this year.

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: Federal Budget Balance (Apr)

• Tuesday: NFIB Small Business Optimism (Apr), Real Average Weekly Earnings (Apr), Headline and core CPI (Apr), Real Average Hourly Earnings (Apr)

• Wednesday: MBA Mortgage Applications (May 9)

• Thursday: Empire Manufacturing (May), Retail Sales (Apr), Headline and core PPI (Apr), Initial Jobless Claims (May 10), Continuing Claims (May 3), Industrial Production (Apr), Capacity Utilization (Apr), Manufacturing (SIC) Production (Apr), Business Inventories (Mar), NAHB Housing Market Index (May)

• Friday: Housing Starts (Apr), Building Permits (Apr preliminary), Import Price Index (Apr), Export Price Index (Apr), New York Fed Services Business Activity (May), University of Michigan Consumer Sentiment Report (May preliminary), Net Long-Term TIC Flows (Mar), Total Net TIC Flows (Mar)

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