U.S. stocks have rebounded strongly this week: Outstanding corporate earnings, relief from U.S.-China tariffs, and diminished inflationary pressure

Taiwan • Business • 05/16 21:54
U.S. stocks have rebounded strongly this week: Outstanding corporate earnings, relief from U.S.-China tariffs, and diminished inflationary pressure

In the second week of May 2025, the U.S. stock market rebounded strongly, with the S&P 500 index rising nearly 5% for the week. Driving factors included corporate earnings exceeding expectations, a temporary pause in the US-China tariff war, inflation data indicating reduced pressures, and market expectations of a shift in Federal Reserve policies. However, the technology and semiconductor sectors performed weakly, reflecting the market's conflicting views on the AI boom versus the real economy.

Key Updates

05/19 06:51

U.S. stock index futures continue to decline following Moody's credit rating downgrade: Dow futures at one point fell more than 300 points.

On May 19, 2025, Moody's downgraded the U.S. sovereign credit rating from Aaa to Aa1, leading to a decline in U.S. stock futures during the Asian trading session. Dow Jones Industrial Average futures fell by 311 points, S&P 500 futures fell 60 points, and Nasdaq 100 futures declined 278 points. This downgrade sparked market concerns, affecting global stock markets and driving up the prices of safe-haven assets such as gold. U.S. Treasury yields neared 4.5%, becoming a key focus for the market, potentially impacting the flow of funds into the stock market.

05/18 10:17

Key Drivers of U.S. Stock Market Trends This Week: Trump's Tariff Negotiations, Federal Reserve Policy, Economic Data, Computex Taipei, and Corporate Earnings

Last week, the major U.S. stock indices rebounded, with investors focusing on five key variables: the Trump administration's tariff policy and trade negotiations, the Federal Reserve's policy stance, U.S. economic data, technology information from the Taipei International Computer Show (COMPUTEX 2025), and corporate earnings, especially the growth expectations for tech stocks. These factors will influence the short-term trend of U.S. stocks.

05/17 22:17

Moody's downgrade of U.S. debt leads to an increase in yields, as Trump signs a $2 trillion deal during his Middle East trip, boosting AI and prompting a stock market rebound.

On May 16, 2025, Moody's downgraded the United States' sovereign credit rating from "Aaa" to "Aa1," leading the 10-year U.S. Treasury yield to rise to 4.49%, and U.S. stocks were under pressure after hours. President Trump visited the Middle East that same week, signing economic and arms deals exceeding $2 trillion with Saudi Arabia, the UAE, and Qatar, and facilitated cooperation on AI chips, which boosted tech stocks. Despite the short-term volatility caused by the downgrade, the market remained optimistic due to the strong performance of AI and tech stocks.

05/17 14:27

Lisa Shalett, Chief Investment Officer at Morgan Stanley, warns: The rebound in U.S. stocks might be coming to an end, suggesting a shift from technology stocks to the financial and healthcare sectors.

Morgan Stanley Wealth Management's Chief Investment Officer, Xia Leite, warns that the rebound in U.S. stocks is unlikely to be sustained. She advises investors to realize profits from tech stocks and shift towards industries such as finance, energy, and healthcare, which benefit from regulatory easing. She points out that there is a structural shift in the AI sector, with corporate revenues and free cash flows below expectations, constraining the market's upward potential. Xia Leite's view aligns with changes in market fund flows, indicating an increasing preference among investors for defensive and value-oriented assets.

05/16 22:55

U.S.-China Tariff Deal and Trump's Visit to the Middle East Boosts the Market: Tech Stocks Lead the Gains, All Three Major U.S. Stock Indices Rise

On May 16, 2025, the US stock market closed higher across the board due to a 90-day tariff suspension agreement reached between US-China and a $200 billion trade agreement as a result of President Trump's visit to the Middle East. The Dow Jones Industrial Average rose by 331 points, the S&P 500 Index closed in the green for the fifth consecutive day, and the Nasdaq Composite rose by nearly 100 points. Tech stocks led the rally, with Tesla and Nvidia stocks rising 17% and 16% respectively this week. However, the US consumer confidence index dropped to its second-lowest level on record, and inflation expectations hit their highest level since 1981, contributing to market uncertainty.

05/16 21:54

U.S. stocks have rebounded strongly this week: Outstanding corporate earnings, relief from U.S.-China tariffs, and diminished inflationary pressure

In the second week of May 2025, the U.S. stock market rebounded strongly, with the S&P 500 index rising nearly 5% for the week. Driving factors included corporate earnings exceeding expectations, a temporary pause in the US-China tariff war, inflation data indicating reduced pressures, and market expectations of a shift in Federal Reserve policies. However, the technology and semiconductor sectors performed weakly, reflecting the market's conflicting views on the AI boom versus the real economy.

05/16 18:26

S&P 500 Index Rises for Five Straight Days: Eased US-China Trade Tensions and Corporate Mergers and Acquisitions Lift Market Sentiment

On May 16, 2025, the S&P 500 index of the U.S. stock market rose for the fifth consecutive trading day, with a total weekly gain of 4.5%. The rally was driven by a reduction in U.S.-China trade tensions, the merger between Charter and Cox, a depreciating dollar, moderate inflation figures, and expectations of a potential rate cut by the Federal Reserve. Investors moved funds back into riskier assets, and market sentiment warmed.

05/16 09:54

U.S. stocks have risen for four straight days: Market sentiment has improved, but the Federal Reserve warns about the risks of supply shocks.

U.S. stocks continued to rise this week, with the S&P 500 index closing higher for four consecutive days. The Dow Jones index rose over 270 points on May 15, due to the easing of U.S.-China tariffs and improving economic data, which boosted market confidence. Federal Reserve Chairman Powell warned that supply shocks could become more frequent and persistent, highlighting that the market still faces risks. Issues such as supply chain bottlenecks, policy uncertainty, and weak consumer spending remain, urging investors to remain vigilant.

05/16 02:58

In April, the US Producer Price Index (PPI) saw its largest decline in five years, putting pressure on technology stocks, leading to mixed results in the US stock market; the Taiwan stock market closed at 21,730 points, as foreign investors have been net buyers for ten consecutive days.

The U.S. Producer Price Index (PPI) fell by 0.5% in April, marking the largest monthly drop in five years, mainly due to a decrease in service prices, indicating a reduction in inflationary pressures. Following the release of this data, the U.S. stock market showed mixed performance, as the Dow Jones and S&P 500 rose, while the Nasdaq and Philadelphia Semiconductor Index fell. On the 15th, Taiwan's weighted index closed down by 52.62 points to 21,730.25, as foreign investors net bought for the tenth consecutive day, with a single-day net purchase of NT$7.534 billion, accumulating over NT$200 billion in net purchases over ten days.

05/16 02:58

U.S. stock futures fluctuate in early morning trading: Dow drops slightly by 17 points, Nasdaq and S&P both retreat.

On May 16, 2025 (local time in Taipei), in early trading, U.S. stock futures were volatile. The Dow Jones Industrial Average futures stood at 42,368 points, down 17 points or 0.04%; the S&P 500 futures were at 5,925.25 points, down 8 points or 0.13%; and the Nasdaq 100 futures were at 21,361.75 points, down 38.5 points or 0.18%. This was in contrast to the rise seen at 08:31, when futures for the three major indices saw a slight uptick. After a mixed performance in the previous trading day, investor sentiment was cautious.

Corporate Earnings Surpass Expectations, Boosting Market Confidence

The strong performance of U.S. stocks this week was primarily driven by a positive corporate earnings season. According to FactSet data, the S&P 500 companies' per-share earnings (EPS) for the first quarter of 2023 increased by 12.8% year-over-year, marking the second consecutive quarter of double-digit growth, far exceeding market expectations. Goldman Sachs noted that the highlight of this earnings season is not only profit growth but also the generally optimistic outlook of companies for the future, which has boosted investor confidence.

Although Walmart's revenue was slightly below expectations, its earnings per share exceeded market estimates, and it achieved profitability in its global e-commerce business for the first time. The company noted that despite emerging tariff pressures have surfaced, consumer behavior has not shown drastic changes, indicating that retail fundamentals remain resilient.

Tariff Relief and Progress in U.S.-China Trade Talks

Another major positive factor came from the easing of U.S.-China trade tensions. On May 12, both countries announced mutual tariff reductions, with U.S. tariffs on China dropping from 145% to 30% and China's tariffs on the U.S. decreasing from 125% to 10%, with 24% of the tariffs suspended for 90 days. This move is seen by the market as a "tariff war ceasefire," significantly reducing corporate cost pressures and boosting the stability of the global supply chain.

Goldman Sachs analysts pointed out that this policy change not only helps improve corporate profits but may also encourage foreign capital to flow into the U.S. market. It is estimated that foreign investment could bring $30 billion to $135 billion annually to the U.S. in the coming years, further supporting the U.S. economy.

Cooling Inflation Data and Shifting Fed Policy Expectations

Improvement in inflation data also provided market support. The annual growth rate of the Consumer Price Index (CPI) in April fell to 2.3%, the lowest since 2021, while the core CPI annual growth rate remained at 2.8%. Meanwhile, the Producer Price Index (PPI) decreased by 0.5% month-over-month, the largest monthly drop this year, indicating that cost pressures faced by businesses have eased.

These data have strengthened market expectations that the Federal Reserve may start cutting interest rates in September. According to the CME FedWatch tool, the probability of a rate cut in September has risen to 78.8%. Although Fed Chair Powell warned of potential more frequent supply shocks in the future, he also acknowledged that current inflation pressures have eased, providing room for policy adjustments.

Defensive Sectors Lead, Technology and Semiconductor Sectors Lag

In terms of sector performance, defensive sectors shone the brightest this week. Utility stocks rose by 2.13%, and consumer staples stocks increased by 2.05%, reflecting investors' cautious attitude towards the economic outlook, favoring assets with stable cash flow and strong resistance to volatility.

In contrast, the technology and semiconductor sectors lagged. The Philadelphia Semiconductor Index fell by 0.59% this week, giving back some of its recent gains. Applied Materials reported earnings that missed expectations for the second quarter, mainly due to Chinese export restrictions and weak demand in the ICAPS (Integrated Circuit and Process Systems) market. The company's revenue share from the Chinese market dropped from 43% in the same period last year to 25%, becoming the main drag on performance.

Additionally, while AI themes remain attractive, concerns about their short-term overvaluation have increased, leading some funds to shift towards industries with more stable fundamentals.

Mixed Economic Data, Market Remains in a Wait-and-See Mode

Despite the overall positive sentiment, some economic data still indicate a slowdown in U.S. economic momentum. Retail sales in April increased by only 0.1% month-over-month, with the control group of retail sales even decreasing by 0.2%, indicating that consumer spending is becoming conservative. The University of Michigan's May consumer confidence index unexpectedly fell to 50.8, a three-year low, reflecting public concerns about the economic outlook.

Additionally, building permits in April decreased by 4.7% month-over-month, and industrial production was also below expectations, indicating that corporate investment and manufacturing activities still face challenges. These data contrast with strong corporate earnings, highlighting the current market contradictions and uncertainties.

Underperforming Industries and Reasons

In addition to technology and semiconductors, discretionary consumer goods and travel-related industries also underperformed. Hotel and airline ticket prices fell by 3.1% and 1.5%, respectively, reflecting weak travel demand. Walmart also noted that procurement of high-risk items such as toys and electronics has been reduced, indicating that retailers hold a conservative view of future demand.

Food stocks also underperformed, mainly due to fluctuations in raw material prices and consumers turning to more competitively priced alternatives. Additionally, the U.S. dollar index remains at a low level of 100.7, which, while beneficial for exports, also reflects foreign investors' concerns about the stability of U.S. policies.

References

People Also Ask...

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How does the temporary truce in the US-China tariff war affect the global supply chain?

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Do you think the temporary ceasefire on tariffs between China and the US will affect our local businesses?

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Why are the technology and semiconductor sectors not performing well in this stock market rebound? How much is the AI craze affecting this?