A Positive Trade Headline a Day Keeps the Bears Away
By Crest Capital Advisors on April 28, 2025
Dow: 2.48% to 40,113.50
S&P 500: 4.59% to 5,525.21
Nasdaq: 6.73% to 19,554.00
Russell 2000: 4.09% to 1,957.62
Bitcoin: 95,105
10-Year Yield: 4.25%
Outperformers: Technology 7.93%, Consumer Discretionary 7.44%, Communication Services 6.36%
Underperformers: Consumer Staples (1.36%)
US equities were higher this week as the S&P 500 and Nasdaq posted their second-best calendar weeks of 2025. Trade remained the biggest focus for markets. Stocks were hit Monday on a broad “Sell America” move after trade tensions with China continued to escalate and fears of a crisis of confidence around the Federal Reserve took center stage after President Trump’s social media posts provoking Jerome Powell. However, trade updates improved through the rest of the week. Reports and White House commentary suggested trade agreements with Japan and India are near, and Treasury Secretary Bessent said Tuesday he sees de-escalation with China, calling the tariff standoff unsustainable.
Concerns around Fed independence were also dialed back substantially on Monday afternoon when President Trump later said he has no intention of firing Powell. A number of media reports also suggested Trump is cognizant of the potential market damage from any attempt to oust Powell, with Secretaries Bessent and Lutnick the most prominent voices in the White House trying to steer Trump away from attacks on the Fed.
In the first week of peak earnings season, Q1 metrics improved with the blended EPS growth rate jumping to 10.1% from 7.2% both last week and at the end of the Quarter. However, a couple high-level themes emerged around earnings this week. The FT noted that companies have increasingly mentioned tariffs and recession in earnings calls, suggesting growing fears around the business impact of the trade war. Bloomberg noted that nearly all margin growth for S&P 500 companies continues to come from big tech, leaving the rest of the index with a narrow margin for absorbing tariffs.
A positive trade headline a day keeps the bears away. This week’s market theme was one where investors used any positivity around progress towards negotiated trade deals as an excuse to wade back in and buy stocks. It is becoming increasingly clear that the United States and its trading partners will be forced to cut deals, as the de facto trade embargo is going to hurt trade flows to an unsustainable extent. While this also means that any negative headline could cause a substantial pullback, it’s good to see that willingness to take risks has returned to the market. As long as fundamentals refrain from pointing at a recession, which we believe there is still plenty of time to avert, then we will likely see more upside in the weeks and months ahead. In the meantime, please enjoy our meme of the week. You are at the “Stock Market Goes Back Up” stage of the cycle. Let’s just hope the president doesn’t use the relief as an opportunity to pile on more.
Déjà vu?
The S&P 500 is trading nearly identically to the pattern of Q4 2018, the last time President Trump and Fed Chairman Powell were locked in a battle over tariffs, recession risk, and inflation. Today, however, the stakes are greater with the President’s tariffs larger, recession odds higher, potentially more tools for Trump to fire Powell (though he came out and said he has no intention of doing so), and both the President and Fed Chair seemingly more dug in to their respective positions. But, as evidenced by the President’s recent pivots from “beautiful” tariffs to negotiations, we believe we have reached the pain threshold in markets where policy pivots are now the base case.
Here’s how we see things likely shaking out:
• Trump needs some quick economic wins as his post-election bump has faded and his political capital is diminished. This will encourage him to get some deals on the books. The market is taking a respite on hopes of deals, but that will only last so long without something tangible. We think he has another week at best.
• There is no chance Fed Chair Powell will be removed, and the steady voices in Trump’s administration have managed to convince Trump to stay quiet on the Fed Chair…for now. Regular readers of the CMD know that we have no love lost for Chair Powell, but the chaos that would be unleashed by an early termination is a bridge too far. Alas, we are stuck with Powell and his ‘always-late-and-a-dollar-short’ open market committee. Rate cuts are probably off the table until June at the earliest.
• Corporate earnings are holding up reasonably well in light of this uncertainty. Once again, the downshift in expectations heading into these earnings reports has managed to set up another “better-than-feared” environment.
• Bond yields, which had spiked in the aftermath of the tariff announcements, were likely being driven more from a liquidity drain rather than tariff and Fed independence headlines. Yields have settled down over the past week or so and now trade at levels that are reasonable and supportive of equity markets.
With all of this, now let’s return to the 2018 analog. Take a look at the chart below comparing the current market to Q4 2018. In 2018, the S&P 500 declined by a similar percentage amount to this current period and ultimately was reversed once the Fed reversed course on rate hikes and ultimately cut interest rates three straight times in 2019. 2019 was an extremely profitable year for stock market investors as the S&P 500 went on to gain a whopping 31.9% that year.
Now all we need to complete the comparison is for Trump to declare victory and move away from the onerous tariffs and Fed Chair Powell to get religion and finally resume the rate cutting path the Fed already embarked upon late last year. Then it could be off to the races?
Manufactured Outrage
The media’s portrayal of tariff-related news has undeniably influenced market sentiment, amplifying fears and fueling sell-offs. This is evident by record levels of persistent bearishness showing up in the investor survey measures. The American Association of Individual Investors (AAII) surveys its members each week and this Thursday marked 9 straight weeks with the majority bearish. This blows away the levels of bearishness in 2008 and 2022, for example, and marks a record streak of bearishness at 9 weeks. It’s so bearish on the face of it that it’s bullish. Contrarians take note!
But back to the media for a moment. It’s debatable if some outlets may be leveraging this tariff narrative to cast the administration in a negative light, potentially skewing public perception. Certainly, we’ve seen our share of willful blindness on the part of financial media talking heads when it comes to covering the story. While tariffs are a complex issue with real economic implications, the framing of these stories can often overshadow nuanced discussions in favor of sensationalism. It’s worth considering how balanced reporting could foster a more informed and less reactionary market environment. That said, we aren’t supportive at all of the haphazard messaging that has accompanied this policy approach.
Even if there wasn’t any bias, we’d suggest the media narrative is more like a weathervane, shifting swiftly when new facts emerge. In the fast-paced world of news, initial coverage may lean heavily on speculation or assumptions, only to pivot dramatically once more concrete information comes to light. This fluidity can reshape public perception overnight, as headlines recalibrate to align with the latest developments.
For example, take a look at these side-by-side cover stories from The Economist magazine taken just 6 months apart. On the left side, from October 2024, we see the headline referring to the US economy as the envy of the world, with a picture of the US Dollar as a rocket ship climbing ever higher. On the right, from this past week, it’s screaming panic as a potential US Dollar crisis unfolds.
In short, the media will always be reactionary, creating the narrative after the facts change in an attempt to explain what just happened. Even in that, markets are so large and complex, the easy “why” you heard on the news may not actually be the reason the price did what it did. It’s just not that simple.
The Case for Global Equities
A question we commonly receive from investors is, “Why should I own anything other than the S&P 500?” That was certainly one of the most common questions investors were asking at the start of the year after 2 straight years of substantial outperformance over virtually every other equity benchmark. Well, after the start of 2025, now they have the answer:
And from a fundamental perspective, we note the valuation differential between the World ex-US index and the US alone remains one of the strongest arguments for investing abroad. Currently, international shares are trading at a ~60% discount compared to domestic shares. A re-rating of multiples could be the quickest way for these stocks to close the underperformance gap.
Q1 Earnings Season Update
The Q1 earnings season for stocks has kicked off with mixed results thus far. Early reports from major companies show earnings growth of roughly in-line with downwardly revised expectations but with slightly better increases in revenues. Analysts are keeping a close eye on guidance from companies, as macroeconomic concerns and sector-specific challenges continue to shape expectations. Tech remains a key driver, with strong performance in areas like AI and high-performance computing outshining some of the other more challenged sectors in the economy.
Economic Funnies
Inside the offices of the major financial media franchises…
Crazy Stat(s) of the Week
• Sam Altman, Founder of OpenAI, commented on a post on X that saying “Please” and “Thank You” to ChatGPT is apparently wasting millions of dollars in computing power.
• The Nasdaq gained more than 2% for three consecutive days this week (Tuesday–Thursday). Since 1971, there have been eleven years that had fewer one day gains of 2% than the Nasdaq had just this week! Also, this further proves the point that the best days are often found amidst the worst days, and being out of the market is a recipe for long-term underperformance.
• The S&P 500 is underperforming the MSCI All Country World Ex-US by the most in 32 years!
Quote(s) of the Week
“Everyone in the world is a long-term investor until the market goes down.”
– Peter Lynch, famed manager of the Fidelity Magellan Fund
Editor’s Note: Let that sink in for a moment. Is this you?
“We continue to see accelerated scaling of AI deployments across the data center market, with strong demand signals reinforcing both our near and long-term growth outlook.”
– Giordano Albertazzi, CEO of Vertiv
Editor’s Note: So much handwringing in the aftermath of the DeepSeek media fiasco that many were calling for the end to the data-center buildout thematic. We knew intuitively these views were likely going to be a ridiculous position to assume, but it became the narrative over the past few months anyway. Well, the Vertiv CEO, who heads one of the major players within the datacenter market buildout, is clearly saying otherwise.
Calendar of Events to Watch for the Week of April 28th
The busy earnings calendar continues next week with major MAG 7 names Microsoft, Meta, Amazon, and Apple at the forefront. It will also be a busy week in Healthcare as conferences kick off as early as this weekend with the AACR Meeting in Chicago. AANS and the American Urological Association Conference should also feature pivotal drug trial data as well next week.
On the US Economic calendar, it’s going to be extremely robust with major reports landing on Wednesday and Friday. The highlights will be Q1 GDP on Wednesday, the Personal Consumption Expenditure (PCE) report on inflation (also on Wednesday), and the Non-Farm Payrolls report for April arriving on Friday. Overall, it will be a very busy week chock full of market moving news releases.
Monday 4/28 – The Dallas Fed Index for April is expected to remain deeply in contraction at -18.0, slightly below -16.3 last month.
Tuesday 4/29 – The JOLTS Job Openings for March is expected to be roughly in-line from the prior month at 7.465m. March Wholesale Inventories are expected to post a 0.45% month-over-month increase, up from 0.3%.
Wednesday 4/30 – Q1 GDP is expected to post a 0.9% quarter-over-quarter increase and 2.3% year-over-year. The Chain Price Index is expected to come in at 2.5% year-over-year. The Employment Cost Index is expected to post a 1.0% increase v. 0.9% last quarter. The Fed’s favored inflation measure will also be out today, with economists expecting a headline reading of 2.2%, down from 2.5% last month, and a Core (Ex-Food/Energy) reading of 2.6%, down from 2.8%. Pending Home Sales for March are expected to increase 1.0%. Finally, the ADP Private Payroll report will give us some hints of what to expect on Friday with the Non-Farm Payroll report.
Thursday 5/1 – April ISM Manufacturing is expected to remain in contraction at 48.4 from 49.0. Weekly Jobless Claims data will continue to be scrutinized as well. So far still no signs of any significant cracks.
Friday 5/2 – Another major data release day headlined by the April Non-Farm Payroll report where economists are expecting 150k net new jobs, down from 228k last month. The unemployment rate is expected to remain unchanged at 4.2%. March Factory Orders are expected to increase 0.45%, down slightly from 0.6% last month.
Source: MarketWatch / FactSet (April 2025)
