Earnings Bolster Markets Despite Tariff Uncertainty
Our Views
- At the start of this week, we expected earnings to be the focus, and in our view, earnings have been positive overall thus far. Overall, we see the macro and the market as being in a better place this week compared to last week and compared to 2-3 weeks ago.
- As of Friday morning, 57% of the companies have reported 1Q2025 earnings, and 77% are beating by a sizable +9.3% on EPS. These are far better than expected.
- On Thursday, Treasury Secretary Bessent commented that when looking at the 2-year yield, the Fed should be cutting. We view the 2-year as a proxy for where the market expects Fed funds to be in eight quarters and where monetary policy should be. Thus, in our view, Bessent is correct in two ways. First, the 2-yr yield is roughly 68bp below Fed funds, so the market is suggesting Fed is 3 cuts behind. Secondly and in our view more importantly, when we compare EU CPI and ours and then look at rates set by the European Central Bank, the Fed is behind the curve.
- BOTTOM LINE: The strengthening in stocks this week seems to indicate that equities have bottomed, as previously suggested by the five signals we previously discussed (the fifth was triggered April 25). To us, probabilities favor a “V-shaped” recovery.
- Short-term trends in U.S. equities remain bullish, but they are nearing initial levels which might lead to a slowdown in this rally following a 15% rally in SPX over the last 17 trading days from 4/7 lows (almost 1% on average per day).
- While momentum is not technically overbought, I suspect that it might prove difficult technically for U.S. equities to continue trending higher above late March highs near SPX-5,800 without some minor consolidation.
- While some “backing and filling” could happen in May, I don’t suspect that April lows will be breached and undercut. Thus, our April low should represent the possible low for the year, given the ongoing subdued levels of sentiment, while Technology has begun to exhibit stellar leadership lately.
- While trends remain positive, I expect that the road likely gets a bit tougher from here over the next month before beginning a more sturdy uptrend. Overall, I expect that risk assets remain positive and will favor rallies back to new all-time highs this coming fall. Furthermore, pullbacks in equity indices, if and when they begin in May, should be seen as buyable at higher levels than April lows.
- This week, we received a few material data points – the first negative real GDP print since 2022, core PCE that came in line with forecasts, and strong tech earnings. To me, this indicates that the market is giving the administration the benefit of the doubt on trade, at least in the absence of stagflation showing up in the hard data.
- We are now seeing the first material signs of USD re-entry into the crypto ecosystem since late January. Stablecoin flows are trending higher, led by renewed growth in USDT. ETF flows for both BTC and ETH have turned positive as well, and CME basis for both assets continues to rise. Together, these signals suggest institutional interest is returning and that leveraged longs are beginning to rebuild.
- Options data also supports a constructive view. Put-call skew has flipped negative across tenors from one week through six months, implying traders are now paying a premium for calls over puts. Historically, this type of skew shift often precedes bullish price action.
- All else equal, I view liquidity conditions as remaining favorable for crypto in the near term. And despite the old adage, “sell in May and go away,” I also view seasonality as still quite favorable. Arguably, it isn’t until we get to mid-summer months that we need to be more attentive to seasonality-based risks.
- Thus, despite the recent rally, and the ongoing uncertainty around tariffs, we still view the near-term risk/reward as favorable for crypto.
- Republicans had hoped to get to a House floor vote on the Budget Reconciliation Bill (aka, “the big beautiful bill”) before Memorial Day, but to me, this is looking unlikely.
- This week’s tariff-related developments produced more questions than others, amidst confusion about the status of trade talks with China.
- The White House made some significant personnel changes on Friday, involving Mike Waltz and Marco Rubio.
Wall Street Debrief — Weekly Roundup
Key Takeaways
- The S&P 500 rose 2.92% to 5,686.67 this week, erasing its post-"Liberation Day" losses. The Nasdaq closed the week at 17,977.73, up 3.42%. Bitcoin was at $97,068.19 on Friday afternoon, about 3.5% higher than Monday levels.
- Head of Research Tom Lee said the first quarter’s earnings results suggest that U.S. companies do an exceptional job of managing shocks, though he warns that subsequent quarters could bring more pain.
- Head of Technical Strategy Mark Newton sees improved technical strength in the market, but suggests near-term choppiness is possible.
"What's the good of living if you don't try a few things?" ― Charles M. Schulz
Good evening,
Despite continued uncertainty about the tariff issue at the beginning of the week, Fundstrat Head of Research Tom Lee suggested that corporate earnings and macroeconomic data would come to occupy a significant share of investors' attention. That's perhaps unsurprising, since more than a third of companies were scheduled to release their 1Q2025 results this week, including closely watched tech giants like Microsoft, Meta, Amazon, and Apple.
As of Friday, more than half the companies in the S&P 500 have released their respective earnings reports. In the view of Head of Data Science Ken Xuan, "The earnings have been good so far." As shown in our Chart of the Week, the tally shows 77% of the companies that have reported beat estimates, with an average beat of around 9%. "That's actually very good," Xuan told us at our weekly research huddle. "It's higher than the five-year average of around 8.8% and the 10-year average of around 7%."
To Lee, this was evidence that "U.S. companies do an exceptional job of managing shocks." That's not to say that the recent trade-policy turmoil hasn't inflicted pain, but as Lee noted, "it has not crippled U.S. companies." He did suggest however, that the pain could get worse in the following quarters. In the meantime, however, Lee views markets as being "in a better place this week compared to last week" and earlier in the month, with probabilities favoring a V-shaped recovery.
Mark Newton, Fundstrat's Head of Technical Strategy, is somewhat in agreement, but not entirely. With the S&P 500 notching its ninth straight day of advances on Friday and recouping its post-Liberation Day losses, Newton acknowledged that "yes, we've had a great rally the last few weeks, and the price action has been phenomenal – both in Technology and the broader market." As a result, "we've had some meaningful improvement in breadth and momentum. And cycles and seasonality suggest that markets did in fact bottom in April."
However, "I don't think [the recovery] will be a straight line, if only because momentum is still quite negative on a weekly basis." As he explained, "when short-term momentum gets overbought while weekly momentum remains negative, sometimes [markets] can prove to be choppy and not a V-shaped move straight back to the highs. And so that's what I'm expecting over the next month."
Newton was pressed to elaborate on timing, and he did so, albeit without high conviction. "I think ideally we get up to 5,750, right near March highs, and then I think we probably are going to have to give some of that back. It probably starts, who knows, potentially within a couple weeks," he said. That said, he added that, "I don't sense that we're going to give back a lot, probably a maximum of 50% of this whole move is given back before we make a move higher."
Other observations from Newton:
- Tech is certainly coming back with a vengeance, and we want to be cognizant of the fact that tech has improved quite a bit and has the most important sector, since it's about 30% of the market.
- If you want to be negative on anything, I'd suggest that it's energy. My work suggests that energy is likely going to continue to show underperformance over the next three to five months. To me, any sort of bounce in crude would be a chance to get out of energy. I think that we're going to see further weakness in this group.
Overall, however, Newton said he is in agreement with Lee "with regards to thinking that lows are in, this is still a bull market, and we can push back to highs."
Sector Allocation Strategy
These are the latest strategic sector ratings from Head of Research Tom Lee and Head of Technical Strategy Mark Newton – part of the May 2025 update to the FSI Sector Allocation Strategy. FS Insight Macro and Pro subscribers can click here for ETF recommendations, precise guidance on strategic and tactical weightings, detailed commentary, and methodology.
Elsewhere
Apple could be charged with contempt of court after a federal judge ruled that the iPhone maker had violated a ruling ordering it to make it easier for app developers to offer non-Apple payment options. The ruling is the result of an antitrust lawsuit filed by Epic Games, maker of the popular Fortnite. Apple had unsuccessfully appealed the injunction to the Supreme Court.
President Trump removed Mike Waltz from his post as national security adviser, instead naming him the U.S. ambassador to the United Nations. Waltz was a key part of a security breach in March, inadvertently adding a reporter to a group chat on Signal in which secret battle plans were discussed. Secretary of State Marco Rubio will do double duty as interim national security adviser until a replacement is named.
Germany's Alternative für Deutschland (AfD) party was designated a right-wing extremist group by the country's domestic intelligence agency despite the party's having won the second-highest number of parliamentary seats in the last election. The agency cited the AfD's prevailing "ethnicity- and ancestry-based understanding of the [German] people" and its views on migrants, particularly "migrants from predominantly Muslim countries."
President Trump issued an executive order blocking all federal funding to the Public Broadcasting Service (PBS) and the National Public Radio (NPR), accusing the two of "biased and partisan news coverage." It's unclear what immediate effect the order will have, as the funding and budgets for the two broadcasters have already been approved by Congress through 2027.
SpaceX's Texas complex known as Starbase could become a company town this weekend, as those living in the complex (mostly SpaceX employees and their families) will vote on whether to incorporate into a municipality. A vote to incorporate would change the way services like education and road management are delivered – SpaceX currently manages them.
And finally: There's at least one issue that Republicans and Democrats in Congress seem to agree on: pennies need to go. A Senate bill calling for the U.S. Mint to stop producing pennies was introduced this week. An earlier House bill not only called for penny production to end, but for all cash transactions to be rounded up or down to the nearest 5 cents. Both bills enjoy bipartisan support. Critics on the coin note that the one-cent coin actually costs 3.7 cents to make, and the Federal Reserve estimates that about $14 billion worth of coins are just sitting in household coin jars, unspent.
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Small Cap Stock List Performance
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SMID Granny Shots
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-16.21%
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