Investors wary ahead of May FOMC (5/7). While some churning expected post-April 7 rally, we also see improving risk/reward given trade progress. Array ( [cookie] => 798499-cc71a0-bebbd3-1f03e9-6bfe24 [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 0 [user_id] => 0 [reason] => Usage under limits [method] => ) 1 and can accesss 1

The May FOMC rate decision and press conference is Wed (May 7th) at 2pm ET. The S&P 500 has recovered >50% of its losses since falling 20% and is hovering near the 200-dma of 5,747. This is reminiscent of 2022 when the S&P 500 fell 20%-ish and recovered to near 200-dma on the eve of Jackson Hole. But in 2022, Fed Chair Powell gave a hawkish speech around the need for more rate hikes and stocks then spiraled down 20% into those Oct 2022 lows. Investors are generally wary that this May Fed meeting could also mark the “top” for stocks in 2025. While we understand the analog seems similar, the high level of existing investor skepticism today, in our view, suggests the risk/reward is better today than in 2022.

• In the last 2 public appearances, Fed Chair Powell comments about the near-term path of monetary policy has been interpreted hawkishly — Powell stated that Fed cannot respond to tariffs until impacts on both inflation and employment are more evident, which means Fed on hold near-term. Thus, investors are bracing for a “hawkish” Fed at the post-meeting press conference.
• But a lot of this may already be priced in. As shown below, since the April jobs report (last Friday), the number expected rate cuts in 2025 has fallen from 4.3 to 3.2. And anecdotally, we have not spoken with anyone who expects the Fed to be anything but hawkish post-May meeting.
• Additionally, sentiment remains visibly bearish. This is evident by the many commentaries from macroinvestors and strategists who warn of declines ahead. And is evident in the AAII sentiment surveys:
  – in latest AAII survey, the percent bears stood at 59.3%
  – this is the highest bearish percentage since April 2, 61.9%
  – this has not fallen below 55.6% in the past 8 weeks
  – a long string of negative sentiment
• There is possibly some positive news on the tariff war and other news front. On Tuesday evening:
  – Lin Jian 林剑, Spokesperson of Ministry of Foreign Affairs of China
  – announced Vice Premier He will meet with the Treasury Secretary Scott Bessent
  – in Switzerland sometime between May 9-May 12
  – Premier He is the Chinese lead person for China-US economic and trade affairs
• This is a positive development on the trade front.
• Moreover, on Tuesday afternoon, President Trump announced:
  “We have a big announcement to make, not about trade but something else but it’s going to be a truly earth shattering and a positive development for this country and for the people of this country.”
• This is supposed to be announced before the end of the week.
• In our view, the de-escalation of trade tensions remains the most important development to watch near term. As 1Q25 earnings has shown, US companies are managing to produce solid results in the face of treacherous economic conditions. And the US economy is still ok. But the longer this drag on trade continues, the greater the risk this has spiraled into a contraction.
• How are we comfortable we have not reached this breaking point yet?
• It is the high-yield market. High yield spreads (BofA HY options-adjusted spread) sits at 360bp wide:
  – this was a low of 259bp on 1/22/25
  – surged to 459bp wide by mid-April
  – recovering to past 50% widening is a positive sign
• If the economy were barreling towards a recession, we would expect these spreads to widen to 600bp or more. Keep in mind HY is not a market impacted by QE, or Treasury refunding, etc, and in our view represents true signal.

Bottom line: Hang in there, but there may be bumps ahead

Equity markets staged a substantial rally since April 7th, and are nearing the 200 day moving average. Thus, we expect investors to be wary and for markets to churn for a bit. But we believe risk/reward has improved a lot since early April. And the Nasdaq advance/decline line making a new high is a positive development as well.

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Key Incoming Data May:

• 5/1 9:45 AM ET: Apr F S&P Global Manufacturing PMI Tame
• 5/1 10:00 AM ET: Apr ISM Manufacturing PMI Tame
• 5/2 8:30 AM ET: Apr Non-Farm Payrolls Tame
• 5/2 10:00 AM ET: Mar F Durable Goods Orders MoM Tame
• 5/5 9:45 AM ET: Apr F S&P Global Services PMI Tame
• 5/5 10:00 AM ET: Apr ISM Services PMI Tame
• 5/6 8:30 AM ET: Mar Trade Balance Tame
• 5/7 9:00 AM ET: Apr F Manheim Used Vehicle Index
• 5/7 2:00 PM ET: May FOMC Decision
• 5/8 8:30 AM ET: 1Q P Unit Labor Costs
• 5/8 8:30 AM ET: 1Q P Non-Farm Productivity QoQ
• 5/8 11:00 AM ET: Apr NY Fed 1yr Inf Exp
• 5/13 6:00 AM ET: Apr Small Business Optimism Survey
• 5/13 8:30 AM ET: Apr Core CPI MoM
• 5/15 8:30 AM ET: May Philly Fed Business Outlook
• 5/15 8:30 AM ET: Apr Core PPI MoM
• 5/15 8:30 AM ET: May Empire Manufacturing Survey
• 5/15 8:30 AM ET: Apr Retail Sales
• 5/15 10:00 AM ET: May NAHB Housing Market Index
• 5/16 10:00 AM ET: May P U. Mich. Sentiment and Inflation Expectation
• 5/16 4:00 PM ET: Mar Net TIC Flows
• 5/19 9:00 AM ET: May M Manheim Used Vehicle Index
• 5/22 8:30 AM ET: Apr Chicago Fed Nat Activity Index
• 5/22 9:45 AM ET: May P S&P Global Services PMI
• 5/22 9:45 AM ET: May P S&P Global Manufacturing PMI
• 5/22 10:00 AM ET: Apr Existing Home Sales
• 5/22 11:00 AM ET: May Kansas City Fed Manufacturing Survey
• 5/23 10:00 AM ET: Apr New Home Sales
• 5/27 8:30 AM ET: Apr P Durable Goods Orders MoM
• 5/27 9:00 AM ET: Mar S&P CoreLogic CS home price
• 5/27 10:00 AM ET: May Conference Board Consumer Confidence
• 5/27 10:30 AM ET: May Dallas Fed Manuf. Activity Survey
• 5/28 10:00 AM ET: May Richmond Fed Manufacturing Survey
• 5/28 2:00 PM ET: May FOMC Meeting Minutes
• 5/29 8:30 AM ET: 1Q S GDP QoQ
• 5/30 8:30 AM ET: Apr Core PCE Deflator MoM
• 5/30 10:00 AM ET: May F U. Mich. Sentiment and Inflation Expectation
• 4/1 9:45 AM ET: Mar F S&P Global Manufacturing PMI Tame
• 4/1 10:00 AM ET: Mar ISM Manufacturing PMI Tame
• 4/1 10:00 AM ET: Feb JOLTS Job Openings Tame
• 4/2 10:00 AM ET: Feb F Durable Goods Orders MoM Tame
• 4/3 8:30 AM ET: Feb Trade Balance Tame
• 4/3 9:45 AM ET: Mar F S&P Global Services PMI Tame
• 4/3 10:00 AM ET: Mar ISM Services PMI Tame
• 4/4 8:30 AM ET: Mar Non-farm Payrolls Hot
• 4/7 9:00 AM ET: Mar F Manheim Used Vehicle Index Tame
• 4/8 6:00 AM ET: Mar Small Business Optimism Survey Tame
• 4/9 2:00 PM ET: Mar FOMC Meeting Minutes Mixed
• 4/10 8:30 AM ET: Mar Core CPI MoM Tame
• 4/11 8:30 AM ET: Mar Core PPI MoM Tame
• 4/11 10:00 AM ET: Apr P U. Mich. 1yr Inf Exp Hot
• 4/14 11:00 AM ET: Mar NYFed 1yr Inf Exp Mixed
• 4/15 8:30 AM ET: Apr Empire Manufacturing Survey Tame
• 4/16 8:30 AM ET: Mar Retail Sales Tame
• 4/16 10:00 AM ET: Apr NAHB Housing Market Index Tame
• 4/16 4:00 PM ET: Feb Net TIC Flows Tame
• 4/17 8:30 AM ET: Apr Philly Fed Business Outlook Tame
• 4/17 9:00 AM ET: Apr M Manheim Used Vehicle Index Mixed
• 4/23 9:45 AM ET: Apr P S&P Global Services PMI Tame
• 4/23 9:45 AM ET: Apr P S&P Global Manufacturing PMI Tame
• 4/23 10:00 AM ET: Mar New Home Sales Tame
• 4/23 2:00 PM ET: Apr Fed Releases Beige Book Mixed
• 4/24 8:30 AM ET: Mar P Durable Goods Orders MoM Hot
• 4/24 8:30 AM ET: Mar Chicago Fed Nat Activity Index Tame
• 4/24 10:00 AM ET: Mar Existing Home Sales Tame
• 4/25 10:00 AM ET: Apr F U. Mich. 1yr Inf Exp Mixed
• 4/28 10:30 AM ET: Apr Dallas Fed Manuf. Activity Survey Tame
• 4/29 9:00 AM ET: Feb S&P CS home price 20-City MoM Tame
• 4/29 10:00 AM ET: Apr Conference Board Consumer Confidence Tame
• 4/29 10:00 AM ET: Mar JOLTS Job Openings Tame
• 4/30 8:30 AM ET: 1Q A GDP QoQ Tame
• 4/30 8:30 AM ET: 1Q ECI QoQ Tame
• 4/30 10:00 AM ET: Mar Core PCE MoM Tame

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: