Fed Holds Steady — But All Eyes on Powell
As expected, the Federal Reserve left interest rates unchanged. What caught investors’ attention, however, was Fed Chair Jerome Powell’s tone during the press conference. Despite a robust labor market, Powell expressed concern over stubborn inflation and hinted that a June rate cut might be premature.
The April jobs report released Friday added to the Fed’s caution. Markets had previously priced in a nearly 85% chance of a June cut, but those odds dropped below 40% following the report. July is now seen as the likelier start for rate easing, with about 80% probability.
“The market’s pricing in between three and four cuts before year-end, but that’s aggressive unless the labor market shows further signs of slowing.”
— Cooper Howard, Director, Fixed Income Strategy, Schwab Center for Financial Research
Mixed Economic Signals
The economic picture remains murky. Friday’s jobs data brought some positive news: nonfarm payrolls rose by 177,000, beating expectations of 130,000. The unemployment rate remained unchanged at 4.2%, reinforcing the strength of the labor market.
However, the Q1 GDP print painted a more cautious picture. Growth came in weaker than expected, driven largely by a sharp rise in imports—a trend that may be linked to businesses front-loading inventory in anticipation of renewed tariffs. Manufacturing activity remains soft, with the ISM Manufacturing Index below expansionary levels, and job openings have declined for the third straight month, hinting at cooling labor demand.
Additionally, consumer spending—while resilient—has shown signs of slowing, especially in lower-income brackets. This divergence between strong headline job numbers and softer economic internals has led to growing uncertainty around the path forward for the Fed.
Global Markets Overview
Global sentiment improved late in the week, driven by renewed optimism around U.S.-China trade negotiations. Unconfirmed reports suggested that Beijing may be preparing to re-engage in discussions on tariffs and intellectual property, which would be a welcome de-escalation amid rising tensions.
Markets in Europe and Asia rallied in response, particularly export-heavy sectors in Germany and South Korea. Investors are increasingly sensitive to developments in trade, given how global supply chains remain vulnerable post-pandemic.
Japan made headlines by signaling that it could leverage its holdings of U.S. Treasuries—one of the largest outside the U.S.—as part of its trade strategy. While such a move would be unprecedented, it underscores the increasingly transactional nature of global trade relations.
Meanwhile, the U.S. dollar, which had been under pressure for most of the year, rebounded modestly from three-year lows. The bounce was attributed to stronger domestic data and rising Treasury yields, although the greenback remains down around 8% year-to-date. A weaker dollar tends to fuel inflation by raising import prices—an added wrinkle for the Fed as it navigates policy decisions.
U.S. Market Performance
Markets surged this week, led by upbeat earnings, improving trade sentiment, and hopes for steady inflation.
- S&P 500: +2.92%
- Nasdaq Composite: +3.42%
- Dow Jones Industrial Average: +3.00%
Friday marked the S&P 500’s ninth straight gain—its longest winning streak since 2004.
Treasury Auctions & Yields
Yields climbed as markets prepared for $125 billion in Treasury auctions. These kick off with 3-year notes today and 10-year notes tomorrow. Rising yields often weigh on equities, but investor sentiment stayed strong this week.
Key Economic Data
- Jobs Report
Payrolls: +177,000
Unemployment Rate: 4.2% (unchanged)
Implication: No rush for Fed rate cuts.
- Q1 GDP (Annualized)
Weaker growth, mostly due to high imports. Slower, but not recessionary.
- ISM Services PMI
Expected: 50.6 (March: 50.8)
Prices Paid remains a concern (March: 60.9), reflecting inflation pressure.
Sector Performance
All 11 S&P sectors posted gains this week:
- Top Performers:
- Communication Services: +4.1%
- Financials: +3.8%
- Technology: +3.6%
- Notable Movers:
- Travel & Leisure stocks surged (Delta, Norwegian Cruise Lines).
- AI and semiconductor stocks led tech gains.
What’s Next?
Keep an eye on:
- Treasury Auctions – Can the market absorb $125B in new debt?
- Inflation Metrics – Especially ISM Services “Prices Paid.”
- ️ Fed Speak – Powell and others may shift market tone.
- Trade Talks – U.S. discussions with China and Japan.
- Earnings Wrap-Up – Nvidia’s report later this month is one to watch.
Conclusion
Markets are showing resilience, buoyed by strong earnings, stable employment, and improving global sentiment. However, beneath the surface lies a more fragile foundation—one where sticky inflation, uneven growth, and geopolitical tensions could reignite volatility.
While investors are currently leaning into the soft-landing narrative, the coming weeks—rich with economic data, Fed commentary, and global developments—will be critical in determining whether this rally has legs or needs a reality check.
