The easing of the U.S. labor market and the shift in AI chip policy are boosting tech stocks, with the technology and healthcare sectors of the S&P 500 leading the gains.

In May 2025, the U.S. labor market showed signs of easing, inflationary pressures persisted, and service sector activities rebounded. The Trump administration plans to lift AI chip export restrictions imposed during the Biden era, boosting tech stocks like Nvidia and AMD. Earnings reports from S&P 500 companies were impressive, with technology and healthcare sectors leading the gains. Nvidia plans to release a scaled-down version of the H20 chip in July to address export restrictions. The utilities sector showed steady performance due to AI-driven electricity demand, and small and mid-cap stocks gained market attention due to the "Made in America" reshoring policy.

Labor Market and Inflation: Data Shows Resilience and Pressure Coexist

According to data released by the U.S. Bureau of Labor Statistics, non-farm employment increased by 177,000 people in April, exceeding the market expectation of 138,000, indicating that the job market remains resilient. However, initial jobless claims rose to 223,000 people, a recent high, and the four-week average also slightly increased to 227,000 people, indicating that some companies remain cautious about the future economic outlook.

Additionally, non-farm productivity in the first quarter decreased by 0.8%, marking the first decline since 2022, while unit labor costs rose to 5.7%, higher than expected, reflecting the higher labor cost pressures faced by companies. In the service sector, the ISM Non-Manufacturing Index rose to 51.6 in April, indicating expansion, but the price index surged to 65.1, the highest since early 2022, showing that inflationary pressures have not eased.

Trade Deficit Widens, Manufacturing Still Under Pressure

In March, the U.S. trade deficit widened to $140.5 billion, significantly increasing from February's $123.2 billion. Goods imports reached a record high of $346.8 billion, indicating strong domestic demand but also reflecting that the Manufacturing PMI's reliance on foreign sources has not improved. The Manufacturing PMI remains in contraction territory, with an April value of 48.5, marking ten consecutive months below the 50 threshold.

AI Chip Policy Shift, Tech Stocks Respond

The Trump administration recently announced plans to withdraw the Biden administration's restrictive rules on AI chip exports. The original rules categorized the world into three export levels, imposing strict restrictions on countries like China. According to a U.S. Department of Commerce spokesperson, the rules were "too complex and difficult to enforce," and the new rules will be simplified, aiming to "unleash American innovation potential."

This news boosted AI chip-related stocks. Nvidia's stock rose 3% on the day of the announcement, although it slightly retreated by 0.7% after hours. AMD also benefited from market expectations of relaxed AI chip export restrictions. Nvidia plans to launch a downgraded version of the H20 chip in China in July to comply with U.S. export regulations. This version will significantly reduce memory capacity and computing performance, possibly requiring downstream customers to adjust module designs.

S&P 500 Earnings Shine, Tech and Healthcare Lead Gains

As of May 8, over 90% of S&P 500 components have reported first-quarter earnings, with 77% exceeding earnings per share expectations, showing an overall annual increase of 12.3%. FactSet estimates that S&P 500 profits will grow by 12.8% annually in the first quarter, with the tech sector expected to grow by 17.5%, and healthcare and communication services also performing well.

The tech sector continues to be driven by AI themes, although some companies like Arm and Marvell saw stock declines due to disappointing forecasts, the overall industry still shows a positive growth trend. Palantir reported record profits but experienced a pullback due to high valuations. The healthcare sector faced short-term weakness due to policy uncertainty following FDA leadership appointments.

Utilities Benefit from AI Power Demand, Perform Steadily

The rapid growth of AI applications has increased demand for data centers and high-performance computing, further increasing power consumption. The utilities sector has benefited, with companies like Constellation Energy showing strong stock performance. The data center construction boom has also driven investments in related infrastructure and power transmission, creating long-term growth momentum for utilities and heavy construction companies.

Small and Mid-Cap Stocks Driven by "Made in America" Policy

Under the Trump administration's "America First" and "Manufacturing Reshoring" policies, small and mid-cap stocks have become market focal points. According to Refinitiv data, the Russell 2000 index, which is primarily composed of small-cap stocks, is expected to see a profit increase of 34.1% by 2025, far exceeding the S&P 500's 9.5%. On the policy front, the Trump administration has added 80,000 apprenticeship positions and plans to create 1 million apprenticeship jobs to support manufacturing development.

Additionally, the Trump administration's "Big Beautiful Bill" (BBB) includes measures such as extending tax cuts, raising the debt ceiling, and easing energy policies. If passed by July 4, it will further boost market confidence and corporate investment willingness.

The easing of the U.S. labor market and the shift in AI chip policy are boosting tech stocks, with the technology and healthcare sectors of the S&P 500 leading the gains.

Key Updates

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