Daily Newsletter 5/1/25
The markets appear to be looking for a definitive direction.
The market’s small reversal on Wednesday surprised us, given that the weak 1Q GDP report was bad news but not exactly new information.
It seems that sentiment remains much weaker than what the hard data suggests, and both traders and retail investors seized the opportunity to buy the dip-coming out ahead for the day.
Microsoft and Meta both posted strong earnings reports that underscored the growing significance of AI, helping to lift market sentiment. This momentum could provide the markets with a short-term boost, unless a new development in the tariff dispute shifts the current trajectory. Meta’s CEO Mark Zuckerberg stated that the company is “well positioned to navigate the macroeconomic uncertainty.” We believe that the accuracy of that statement will soon be put to the test.
Earnings releases could gradually shift market sentiment if companies offer strong forward guidance. However, most reports have included cautions about the upcoming negative effects of tariffs. Many major companies-including Stellantis, Mercedes, General Motors, UPS, and Walmart-have recently pulled or reduced their full-year financial guidance for 2025, explicitly citing uncertainty created by tariffs as a primary reason. Executives are warning that the volatility and unpredictability of tariff policies make it difficult to reliably forecast business performance, prompting some to suspend or revise their outlooks and even announce layoffs in response to anticipated cost increases and supply chain disruptions.
This morning’s McDonald’s earnings report could provide valuable insights into the current state of U.S. consumer behavior. Consumer sentiment has recently emerged as one of the most crucial indicators.
Gold declined, extending its consolidation phase, which is not unexpected. If this consolidation persists, the Dollar is likely to strengthen.
In volatile markets, we prefer tactical, short-term trades over long-term holdings, enabling us to remain flexible and react swiftly to new information or changing market conditions. In volatile markets, it’s often wise to lock in gains sooner, use trailing stops, or scale out of positions to protect profits before conditions change.
Using chart patterns, support/resistance levels, and momentum indicators to identify entry and exit points is especially useful when fundamentals are clouded by uncertainty. Staying informed on earnings, economic releases, and policy news helps traders anticipate market-moving events.
We continue to believe that the likelihood of a mild recession remains elevated. While market sentiment may turn bullish in the short term, the underlying data points to a different outlook. In our opinion, uncertainty and weakening business and consumer confidence will be the most decisive factors moving forward.
The jobless claims report is scheduled to be released today at 8:30 AM EST.
The ISM Manufacturing PMI data is scheduled to be released today at 10:00 AM EST.
May 2, 2025, is significant because it marks the effective date for a major escalation in U.S. tariffs on low-value imports from China and Hong Kong.
The next FOMC (Federal Open Market Committee) meeting is scheduled for Tuesday, May 6, and Wednesday, May 7, 2025. The policy statement is typically released at 2:00 PM EST on the second day of the meeting, followed by a press conference with the Fed Chair at 2:30 PM EST.
The May 2025 FOMC decision will set the tone for monetary policy in the coming months, impact financial conditions, and provide critical guidance at a time of heightened economic uncertainty.
We do not anticipate a rate cut in May; however, a reduction in June appears highly likely.
The tension between Donald Trump and Federal Reserve Chair Jerome Powell is highly important for the U.S. economy because it directly affects the Federal Reserve’s independence, market confidence, and the effectiveness of monetary policy.
We anticipate the tension to ease, at least for the time being.
OUR TRADES
As you know, we typically balance short-term trades with medium- and long-term investments, but the current environment has compelled us to prioritize tactical strategies. Recently, we've been concentrating more on tactical trades because of increased market uncertainty-a shift from our typical strategy during more stable periods. We expect to maintain this approach until there is greater clarity on the market’s direction.
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