Investment Update May 6, 2025

Last Week on Wall Street

Economic data for the week included U.S. GDP growth for Q1 coming in negative, as well as weaker manufacturing, construction spending, and consumer sentiment. On the positive side, home prices continued to rise, albeit at a slower rate, while the employment situation report came in stronger than expected, still showing growth.

Equities saw gains globally, buoyed by positive earnings and hopes for U.S. trade deals. Bonds fell back along with higher interest rates and a stronger U.S. dollar. Commodities fell back along with weaker crude oil demand expectations.

U.S. stocks rose for the second straight week, with nine straight positive days. By sector, industrials, technology, and communications saw the strongest gains, over 4%, while energy was the only sector in decline. Real estate also gained over 3%, despite higher interest rates. Strong earnings reports from Microsoft and Meta helped the overall mood, although Apple and Amazon did not. Overall, per FactSet, with over 70% of companies now having reported Q1 earnings, the blended EPS growth rate is running at 12.8% year-over-year, with a similar 76% of firms reporting an earnings surprise, well above expectations from March 31. Earnings growth for 2025 as a whole is estimated at 9.5%, while 2026 stands at an even more robust 11.1%.

Foreign stocks also experienced gains, due to signs of stronger manufacturing and economic performance abroad as well as some hopes for tariff relief. In fact, eurozone GDP in Q1 improved a few tenths to 0.4%, helped by the group of Ireland, Spain, and Italy, while Germany and France saw weaker, but still-positive growth. Emerging markets fared similarly to developed, with the exception of strong returns in Taiwan, which tend to be correlated to the global technology sector.

Bonds fell back as U.S. Treasury interest rates ticked higher, with governments faring a bit better than investment-grade corporates. However, high yield and floating rate bank loans earned positive returns. Foreign bonds were held back by a stronger U.S. dollar last week.

Commodities retreated last week, with a stronger dollar along with declines in energy, agriculture, and precious metals. Crude oil fell by over -7% last week to $59/barrel. This was offset by a 17% rise in natural gas prices, with some warmer weather expected, which raises air conditioning demand.

(Source LSAConnect)

Fact of the Week

The Consumer Price Index (CPI) (-0.1%), Producer Price Index (PPI) (-0.4%), and Import Prices Index (-0.1%) all declined on a month-over-month basis in March for the first time since April 2020. Since the start of 2010, there have been only 14 other months in which all three inflation indicators have declined in the same month.

(Source: Bespoke)