Deal or No Deal?

By Crest Capital Advisors on May 12, 2025

Dow: (0.16%) to 41,249.38
S&P 500: (0.47%) to 5,659.91
Nasdaq: (0.27%) to 17,928.92
Russell 2000: 0.12% to 2,023.06
Bitcoin: 103,530
10 Year Yield: 4.38%
Outperformers: Industrials 1.06%, Consumer Discretionary 0.81%, Utilities 0.53%
Underperformers: Healthcare (4.26%), Communication Services (2.42%)

Stocks were mostly lower this week, but only marginally, on the heels of the recent 9-day S&P 500 winning streak. Losses were partially limited by some positive trade/tariff developments with a focus on de-escalation. Specifically, President Trump announced a framework agreement with the UK which includes lower tariffs on UK-made autos to 10%, beef and steel/aluminum tariffs will be cut close to zero, though a 10% universal tariff on the UK will otherwise remain. Meanwhile, the US and China are set to hold initial trade talks this weekend. Treasury Secretary Bessent noted talks will focus on de-escalation rather than a sweeping deal.

The conclusion of the May Fed Meeting was the other big event this week. As expected, the meeting ended with no changes to interest rates, but the policy statement did add that risks of higher unemployment and higher inflation have risen. An acknowledgement of heightened risk is at least a precursor towards the Fed actually acting on rate cuts at some point in the future. That’s the best we can get from them right now.

Beyond trade and the Fed, it was a relatively quiet week. We’ve reached a point where the market is largely in wait-and-see mode. IF we get substantial de-escalation and resolution on tariffs, then this market could very easily continue higher towards previous highs. IF we do not, or if we backslide on tariffs, then we could see additional wobbles as Wall Street indigestion remains. We still have time to avert a lasting problem, but at some point the market will get impatient. It’s “Let’s Make a Deal” time and we need to see some action here, soon.

Here We Grow Again

Crest Capital is pleased to welcome Michael Winaker. Michael joined Crest Capital Advisors as a Private Wealth Associate in 2025 with the commitment to support the Crest Capital team and deliver excellent service to clients.

Prior to joining, Michael worked as a Corporate Stock Benefit Analyst at UBS, specializing in trading, financial planning, and corporate equity strategy for his team. Throughout his time at UBS, he optimized the asset management process for clients by building out systematic trading strategies and extended financial planning services across a wider range of clientele.

Michael holds a bachelor’s degree in finance from Pepperdine University and a Certificate in Conflict Management through the Pepperdine School of Law. He also maintains FINRA Series 7, Series 63, and Series 65 licenses and is a CFA (Chartered Financial Analyst) Level 2 candidate.

What he values most about his role at Crest Capital Advisors is joining a dynamic, collaborative team that tackles the complexities that corporate executives and General Partners face on a daily basis.

A fun fact about Michael… he was a walk-on to the Pepperdine University baseball team and competed all four years of college, hitting a home run against the University of the Pacific in 2021.

Michael was born and raised in the San Francisco Bay Area and enjoys playing in any organized team sport that he can find or volunteering in his church.

Tactical Update

The S&P 500 has staged a strong rebound from recent lows, but took a pause this week as we have now pushed back up toward key resistance levels (see chart below for the visual). After weeks of volatility, investor sentiment remains soundly bearish. The next leg, whether up or down and by how far, will likely hinge on how tariff negotiations unfold. If policymakers strike a series of market-friendly trade deals, it could provide the fuel needed for a breakout rally. However, if talks falter or new tariff pressures emerge, selling momentum could take over, dragging the index back toward the April lows. We’ve definitely arrived at the “prove-it” moment for Trump’s trade team.

As noted above, the S&P 500 has moved into resistance levels near the 200 day moving average. A pullback or pause this week, particularly after posting 9 straight days of gains through last Friday, was probably inevitable. We’ll likely continue to churn here until we get news to push us one direction or the other.

Looking deeper at the market move off the lows, we note the 10-day advancing percentage has been quite good. Typically, we only see readings like this in the context of sustained market advances (Blue boxes in the chart below).

While short-term momentum has been strong, enough damage was done in the sell-off prior that just 44% of stocks in the S&P 500 index were trading above their respective 200-day moving averages as we entered this week. We’re going to need to see improvement in this metric in order to be confident in a sustained advance from current levels.

And finally, turning to credit, we are relieved to see that credit spreads have come in substantially. This is not the sign one would expect if we were on the precipice of a recession. We’ll continue to monitor this metric, but for now, we interpret this data as bullish.

Passive Income Has Peaked

One of the effects of falling interest rates is the decline in yields on money market funds, leading to reduced passive income for both consumers and businesses. While yields remain elevated compared to the post–Global Financial Crisis period, they are beginning to soften as the market anticipates further rate cuts from the Federal Reserve. The additional income from “cash assets” has served as a financial cushion, supporting consumer spending and helping businesses manage operating expenses or maintain employment levels. For now, the shift isn’t overly concerning, but it does represent a subtle change worth monitoring.

The Case for Private Markets

According to Apollo Global (one of the largest private markets asset managers in existence), adding private markets exposures to a traditional 60/40 portfolio (That’s 60% stocks, 40% bonds) has historically enhanced returns. And to be clear, we agree with them.

To achieve the results shown in the table above, Apollo tested the historic performance of their private markets portfolio. They started with two goals: To measure the performance of the portfolio against the 60/40 portfolio itself, and to determine the impact of altering a 60/40 portfolio by replacing a portion of public markets exposures with the private markets portfolio. For their experiment, they replaced 10 percentage points of public equity exposure and 10 percentage points of fixed income exposure. The result is a 50/30/20 portfolio (Stocks/Bonds/Private Markets).

As the table illustrates, in the period from January 2008 (roughly the end of the Global Financial Crisis) to June 2024, a 50/30/20 portfolio outperformed the 60/40 in terms of annualized returns, and it did so at significantly lower levels of volatility. 

Looking forward, Apollo suggests a combination of elevated public stock and bond valuations, recalcitrant inflation, and higher-for-longer interest rates could be creating new challenges for 60/40 portfolios and that the current environment remains an attractive entry point to private markets.

Key Takeaways

•    Valuations in public markets remain at lofty levels. Persistent inflation could keep interest rates higher for longer.

•    High valuations and an elevated rate environment, combined with other factors like strong correlations between stocks and bonds, could create challenges for investors with 60/40 portfolio allocations.

•    Periods of high public equity valuations have historically represented attractive entry points to private markets. A balanced portfolio of alternatives has meaningfully outperformed following past periods of elevated public equity valuations and interest rates.

•    Adding private markets to a 60/40 portfolio has historically enhanced returns while minimizing volatility, boosting returns per unit of risk across market cycles. 

Q1 Earnings Season Update

Despite a weaker GDP print in the first quarter, both revenue and earnings have turned out to be quite strong so far, with growth of 4.6% and 13.6%, respectively. The most noticeably weak spot remains the Energy sector, which is unlikely to improve in the second quarter as oil prices continue to decline. Health Care and Communications have shown strong growth this earnings season with Health Care’s performance largely due to easier year-over-year comparisons, while Communications is benefiting from being less affected by tariffs. Perhaps the biggest takeaway this earnings season is how clearly the results highlight the divergence between the S&P 500 and the broader economy.

Economic Funnies

Crazy Stat(s) of the Week

•    The US Government now spends more money on interest payments from the National Debt than it does on Defense spending. See the chart below where you may note the sudden inflection higher in interest costs corresponds with the Fed’s rate hiking campaign. 

Quote of the Week

“If it’s in the papers, it’s in the price.”    

        –      Bill Miller

Calendar of Events to Watch for the Week of May 12th

While we do move past the peak of Q1 earnings reports, we’re still tracking a fairly heavy number of influential reports on deck for next week. In general though, with earnings starting to slow, next week sees a massive pickup in Brokerage Conferences with a handful of notable conferences from BofA, BMO, Citi, Goldman Sachs, JP Morgan, Piper Sandler, UBS, Wells Fargo, as well as a few notable Drug/Healthcare Conferences on tap. Should be a large amount of guidance/drug trial commentary on tap in the week ahead.

On the US Economic Calendar, we see a fair number of Fed speaking events next week after this week’s FOMC meeting where Powell offered little information about a possible June cut. Powell himself is set to speak on Thursday among the daily speaking events we’re tracking next week. In data readouts, CPI on Tuesday will be the highlight but we also get key reports on Retail Sales, Industrial Production, Business Inventories, and the NAHB Housing Market Index.

 
Monday 5/12 – No major US economic news today. The monthly Treasury budget data for April will be released.   

Tuesday 5/13 – With the Fed dug into a “wait-and-see” mode, the monthly inflation reports seem to be taking on less and less importance. That said, we’ll get the April Consumer Price Index (CPI) data with economists expecting a headline level of 2.5% (up from 2.4% last month) and a 0.3% month-over-month increase. The more important Core (Ex-Food/Energy) is expected to come in at 2.9% and 0.37%, respectively.  

Wednesday 5/14 – Once again, no major US economic reports due today. Just a couple of Fed speakers that will get attention if they drop more clues into when the Fed might resume cutting rates again.   

Thursday 5/15 – A busy day kicked off with the Producer Price Index (PPI), where economists expect a headline rate of 2.7%, reflecting a 0.25% month-over-month increase. The Core (Ex-Food/Energy) is expected to be 3.3% growing at 0.3% month-over-month. April Retail Sales will also be released today with economists projecting a 0.4% increase, down from last month’s 1.4% pace. April Industrial Production is expected to tick up by 0.1%, up from last month’s -0.3% contraction. The Philly Fed and Empire Fed regional indices will both be out with forecasters looking for very modest-to-neutral growth levels. And finally, turning to monetary policy, Fed Chair Powell will be speaking at a Conference, so expect a lot of focus on what he has to say on the current state of monetary policy. 

Friday 5/16 – The US Import Price Index is expected to show a -0.2% contraction, roughly inline with last month’s -0.1% pace. The Export Price Index is expected to increase by 0.1%. April Housing Starts are expected to post a 4.6% increase.

Source: MarketWatch / FactSet (May 2025)