U.S. Stock Markets Rise Amid Eased Trade Tensions and Economic Data

The S&P 500 Index ($SPX) (SPY) closed up +0.70% on Friday, while the Dow Jones Industrials Index ($DOWI) (DIA) increased by +0.78%. The Nasdaq 100 Index ($IUXX) (QQQ) also saw a gain, closing up +0.43%. Additionally, June E-mini S&P futures (ESM25) rose +0.68%, and June E-mini Nasdaq futures (NQM25) gained +0.48%.

On Friday, stock indexes settled higher, with the S&P 500 reaching a 2-1/4 month high and the Dow Jones posting a 1-1/2 month high. This week’s rally was supported by easing trade tensions between the U.S. and China, fostering a risk-on sentiment in asset markets. Notably, stocks added to their gains in the afternoon as optimism grew around U.S. trade negotiations, following a Financial Times report that the U.S. and European Union overcame an impasse, allowing for tariff discussions. Furthermore, lower Treasury note yields bolstered stocks on speculation that the Federal Reserve might lower interest rates to prevent a recession.

Housing Market Data and its Impact

Friday’s U.S. housing data came in weaker than anticipated, negatively impacting stocks but benefiting bond prices. April housing starts and building permits fell more than expected. Importantly, the U.S. April import price index ex-petroleum recorded its largest increase in a year, presenting a hawkish signal for Fed policy.

Stock gains were limited after the University of Michigan’s May consumer sentiment index unexpectedly dropped to a nearly three-year low. In addition, the same index indicated a rise in inflation expectations, hitting multi-decade highs, which is concerning for Fed policy discussions.

The April housing starts rose by +1.6% month-over-month to 1.361 million, which fell short of expectations set at 1.364 million. April building permits, a predictor for future construction, decreased by -4.7% m/m to 1.412 million, contrasting with the consensus expectation of 1.450 million.

Market Sentiment and Fed Expectations

The April import price index ex-petroleum saw a +0.4% m/m increase, surpassing forecasts of +0.1% and marking the most significant rise in a year.

In another concerning development, the University of Michigan’s May consumer sentiment index unexpectedly declined by -1.4 to a low of 50.8, which was below the projected rise to 53.4. The one-year inflation expectations indicator surged to a 43-year high of 7.3%, exceeding expectations of no change at 6.5%. Furthermore, the 5-10 year inflation expectations indicator rose to a 34-year high of 4.6%, also higher than the expected figure of 4.4%.

Comments from Atlanta Fed President Bostic on Friday provided some modest support for stocks, as he noted a slowdown in the U.S. economy but ruled out a recession. He expects “one rate cut this year” amid economic uncertainty and inflationary pressures from tariffs. Currently, the markets are pricing in a 9% chance of a -25 basis point rate cut at the upcoming FOMC meeting scheduled for June 17-18.

Earnings Report Summary

The Q1 earnings reporting season is nearing its conclusion. More than 80% of the companies in the S&P 500 have reported, with 77% exceeding analyst estimates—the highest rate since Q2 2024. Q1 earnings growth is currently at +13.1%, compared to an expected +6.6% before the season. Full-year corporate profit growth for 2025 in the S&P 500 is projected at +9.4%, down from an earlier forecast of +12.5% made in early January.

International Market Overview

Overseas stock markets were mixed on Friday. The Euro Stoxx 50 rose to a seven-week high, closing up +0.29%. In contrast, China’s Shanghai Composite fell by -0.40%, while Japan’s Nikkei Stock 225 remained unchanged.

Interest Rates Update

June 10-year T-notes (ZNM25) closed up +2.5 ticks, with the 10-year T-note yield declining by -0.4 basis points to 4.428%. These T-notes benefited from a rally in European government bonds and reports indicating weaker-than-expected U.S. housing data. However, the rise in the U.S. April import price index ex-petroleum and unexpectedly high inflation expectations posed hawkish concerns for Fed policy.

European government bond yields fell on Friday, with the 10-year German bund yield dropping by -3.2 basis points to 2.590%, and the 10-year UK gilt yield decreasing by -1.1 basis points to 4.649%.

ECB Governing Council member Kazaks noted that interest rate cuts by the ECB are nearing their endpoint, stating that “we are relatively close to the terminal rate already” if inflation returns to 2% this year.

Swaps show a 91% probability for a -25 basis point rate cut at the upcoming ECB policy meeting on June 5.

U.S. Stock Movers of the Day

Pharmaceutical stocks and health insurance companies rebounded on Friday. UnitedHealth Group (UNH) led the S&P 500, closing up over +5%. Other gainers included Moderna (MRNA) with a +5% rise, and Humana (HUM) closing up over +4%. Several other companies, including Eli Lilly (LLY), Elevance Health (ELV), Cigna Group (CI), and CVS Health (CVS), also posted gains of more than +3%.

On the downside, Applied Materials (AMAT) fell over -5%, leading losses in the S&P 500 and Nasdaq 100 after reporting Q2 net sales of $7.10 billion, below the consensus of $7.13 billion. Other chip stocks such as Marvell Technology (MRVL) and Broadcom (AVGO) also experienced declines.

CoreWeave (CRWV) jumped +22% after Nvidia increased its stake in the company from 5.2% to 7%. Meanwhile, Archer Aviation (ACHR) rose over +9% after becoming the “Official Air Taxi Provider” for the 2028 LA Olympic and Paralympic Games. Adobe (ADBE) closed up more than +3% on positive commentary regarding its Creative Cloud pricing strategy.

Rocket Companies (RKT) and Vistra Corp (VST) both saw gains of over +3% due to strategic updates. Martin Marietta Materials (MLM) closed up more than +2% after receiving an upgrade from UBS, while Constellation Brands (STZ) gained over +2% following an investment by Warren Buffet’s Berkshire Hathaway.

However, Globant SA (GLOB) fell over -23% after reporting disappointing Q1 revenue and lowering its full-year forecast. Doximity (DOCS) declined more than -10% after forecasting lower-than-expected future revenue. Additionally, Take-Two Interactive Software (TTWO) and Starbucks (SBUX) closed down due to analyst concerns over their forecasts.

Upcoming Earnings Reports (5/19/2025)

8×8 Inc (EGHT), Agilysys Inc (AGYS), Aldeyra Therapeutics Inc (ALDX), Gencor Industries Inc (GENC), Safe Bulkers Inc (SB), Target Hospitality Corp (TH), Transcat Inc (TRNS).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy

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