Weekly Notes from Tim
By Tim Holland, CFA, Chief Investment Officer
- It has been an interesting few months for investors…US stocks got off to a great start in 2025, driven by strong earnings growth, AI enthusiasm, and hoped-for tax cuts and a lighter regulatory touch from the incoming Trump Administration. In fact, the S&P 500 hit an all-time high of 6,147 on February 19th, for a year-to-date gain of 5%. Then, markets wobbled … China’s DeepSeek helped upend the AI trade, while inflation and trade policy concerns began to weigh on sentiment, and then, April 2nd — “Liberation Day” — happened and markets tumbled, with April 3rd and 4th seeing $6.6 trillion in U.S. equity market capitalization wiped away, the worst two-day stretch in history. At their nadir, the S&P 500 and the NASDAQ Composite were off 18% and 23% in 2025. Then, we got a 90 day pause in most reciprocal tariffs from the Trump Administration, mostly better-than-expected economic data through April and into May, and a dramatic climb-down in U.S./China relations, all of which put a big bid under U.S. stocks (as of this writing, the S&P is up 22% and the NASDAQ Composite is up 29% from their respective 2025 lows).
- While most investors have focused on stock market volatility, the two markets that really got Wall Street’s attention during the worst of the April drawdown were the currency markets and the debt markets. More specifically, the dollar sold off meaningfully through April, down 9% year-to-date as of April 21st, (see chart, top) while U.S. bonds also moved lower, leading to a narrative taking hold in some corners that due to policy uncertainty global investors were rethinking their exposure to the U.S., questioning its safe-haven status — and the safe-haven status of the U.S. dollar and U.S. government debt — and moving their money elsewhere. We thought that it was too early to reach that conclusion then and we still think it is (some have argued that the dollar sold off due only to concerns about U.S. growth). Either way, and with a nod to Mark Twain, we think reports of the dollar’s death are greatly exaggerated. Consider that the dollar is by far the most widely held currency by central banks globally at 52% of foreign exchange reserves (per the International Monetary Fund) and the dollar’s share of international transactions was 50.2% in January (per financial messaging service Swift). Beyond that, at a run rate of $30 trillion in GDP, the U.S. remains the world’s largest economy, and with 70% of that GDP driven by consumption, the U.S. remains the world’s largest consumer market. Finally, following its recent bounce, the greenback is trading above the lower end of its three-year range and still well above where it traded four years ago (see chart, bottom).
Chart Source: FactSet, May 14, 2025
Looking Back, Looking Ahead
By Ben Vaske, BFA, Senior Investment Strategist
Last Week
Equity markets surged last week after the U.S. and China agreed to sharply cut tariff rates for 90 days as the two countries continue to work toward a longer-term trade deal. The temporary tariff reductions take United States tariffs on China from 145% to 30%, and Chinese tariffs on the U.S. from 125% to 10%. The S&P 500 was up 5.3% on the week, and the tech-heavy NASDAQ was up 6.9%, fueled in part by a 16% weekly gain for Nvidia (NVDA). Major U.S. indexes turned positive year-to-date as a result, and the NASDAQ entered a new bull market (more than 20% above its recent low).
Also notable, the Consumer Price Index (CPI) inflation reading came in below expectations at 2.3% year-over-year compared to the consensus 2.4% and is now at its lowest level since February 2021. Investors will continue to pay close attention to any signs of inflationary pressures over the summer as tariff duties continue to be collected. The Fed remains in “wait-and-see” mode, as expectations for a rate cut in June have fallen to 8% from 60% a month ago.
This Week
Economic data is lighter this week, but Federal Reserve officials are scheduled to give eleven speeches. We will be listening closely for any insight into the path of monetary policy going forward, beyond what’s been disseminated by Fed Chairman Powell. Additionally, any surprises in home sales data at the end of the week could impact the outlook on a housing market that has reached record low affordability levels in recent months.
Finally, first quarter earnings season will near its close this week, with several more retail names, including Target, scheduled to report. For the calendar year 2025, analysts are projecting earnings growth of around 9%, down from around 15% at the start of the year, according to FactSet.
We hope you have a great week. If there’s anything we can do to help you, please feel free to reach out to ben.vaske@orion.com or opsresearch@orion.com.