Tariff setbacks are positive for equities, as it pushes us closer to the end game. Still the "most hated" rally = bullish

VIDEO: S&P 500 is on track to gain +1.6% this week, adding to an already strong May.  This is a reminder that pullbacks are shallow and this remains one of the most hated rallies.

Please click below to view our Macro Minute (duration: 5:56).

There were several incremental positives this week from Nvidia results (NVDA -2.88%  strong) to tariff developments, which led to a strong week for S&P 500 up +1.6% week to date and Nasdaq 100 +2.2%. A strong week on top of an already strong month. Clients have asked us why stocks have moved up so sharply on what seems to be “benign” news — to us, this reflects both the sizable perception gap (investors more skeptical of fundamentals) and positioning gap (this is still the most hated rally):

• In our meetings with portfolio managers, it is clear to me this is the “most hated rally” given the V-shaped recovery and is akin to the rallies of:
  – post-COVID 2020 thru June 2020
  – post-Fed hike cycle 2022 from Nov 2022 to summer 2023
• In those other precedent instances, investors were skeptical of the V-shaped bounces and ultimately, investors turned constructive once the S&P 500 managed to close at all-time highs. In other words, we believe investors will turn constructive when the S&P 500 closes above 6,120.
• But the drivers of this “most hated” rally are as follows:
  – Sizable perception gap: Tariff “bark worse than bite”
  – Hedge funds increased short interest recently
  – $7 trillion cash on sidelines
  – Investment outlook better now than in Feb 2025:
  – tariff visibility
  – tax and de-regulation visibility
  – US cos survived 5^th major “stress test”
  – Fed more dovish in 2026

• On the tariff front, there have been notable developments.
  – On Wed eve, the International Trade Court ruled against Trump tariffs
  – On Thu afternoon, the D.C. District Court Judge Contreras rules tariffs illegal
  – On Thu afternoon, the Federal Court of Appeals issued administrative stay, reinstating tariffs until June 9^th (ish)
• So the tariffs saw a setback which, however, has not deterred the White House. As the advisors noted, the White House can still proceed with other ways to implement tariffs (see below). But to us, this is not the central point:
  – the White House is losing leverage on these negotiations
  – which suggests to us, the White House is looking for an “off ramp”
  – thus, this is a positive for stocks
• And keep in mind, the “bark has been worse than bites” for many of the aggressive actions taken by the White House:
  – Tariff threats leading to concessions
  – DOGE cuts less than expected, but led to concessions
  – Budget bill less cuts than expected, but led to concessions “Bark is worse than bite”

• As for the macro, there is a bit this week. But the focus will be on Friday’s April Core PCE:
  – 5/25 Sun 2:40 PM ET: Powell Gives Baccalaureate Remarks    
  – 5/26: Memorial Day (Market Closed)
  – 5/27 Tue 8:30 AM ET: Apr P Durable Goods Orders MoM    -6.3% vs -7.8%e
  – 5/27 Tue 9:00 AM ET: Mar S&P CS home price 20-City MoM   -0.12% vs 0.30%e
  – 5/27 Tue 10:00 AM ET: May Conference Board Consumer Confidence   98 vs 87e
  – 5/27 Tue 10:30 AM ET: May Dallas Fed Manuf. Activity Survey    -15 vs -23e
  – 5/28 Wed 10:00 AM ET: May Richmond Fed Manufacturing Survey   -18 vs -9.0e
  – 5/28 Wed 2:00 PM ET: May FOMC Meeting Minutes
  – 5/28 Wed 4:20 PM ET: NVDA Earnings Release   
  – 5/29 Thu 8:30 AM ET: 1Q S GDP QoQ    -0.2% vs -0.3%e
  – 5/30 Fri 8:30 AM ET: Apr Core PCE MoM    0.17%e
  – 5/30 Fri 10:00 AM ET: May F U. Mich. 1yr Inf Exp

BOTTOM LINE: Still “most hated rally”

This still remains the “most hated” V-shaped stock rally. We view Bitcoin as a leading indicator and thus, we expect stocks to reattain all time highs, which Bitcoin achieved last week. We see S&P 500 reaching 6,600 by year-end.

And the drivers for this upside are:

• Still most hated rally
• Sizable perception gap: Tariff “bark worse than bite”
• Hedge funds increased short interest recently
• $7 trillion cash on sidelines
• Investment outlook better now than in Feb 2025:
  – tariff visibility
  – tax and de-regulation visibility
  – US cos survived 5^th major “stress test”
  – Fed more dovish in 2026

As for what we would buy

• Washed out stocks
• MAG7 & Bitcoin
• Industrials
• Financials: Large-cap and regional banks
• Small-caps
  

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45 SMID Granny Shot Ideas: We performed our quarterly rebalance on 5/22. Full stock list here -> Click here

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

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: