Executive Summary
Last week was another round of “headline roulette” where Trump claimed a trade deal with the EU was imminent (though he provided no details or timeline); Trump was more specific about a U.S.-Ukraine minerals accord, saying a deal would be signed in a week; Trump addressed Powell on social media, saying his removal couldn’t come soon enough and again demanding immediate rate cuts. Trump’s comments regarding the Fed Chair were in response to Powell’s comments last week—stressing a wait-and-see stance on the trade war’s inflation impact—dampened hopes for quick Fed action. The “Fire Powell Trade” based on the reaction of risk markets is declining USD, equities, and 30-yr U.S. Treasury (price down/yield up) with an increase in gold and VIX (equity “fear index”).
Ongoing tariff reversals have eroded confidence in the world’s reserve currency, with the dollar extending its losing streak into a third week. The economic data on Thursday was mixed. Jobless claims fell to a two-month low, pointing to a resilient labor market. However, the Philadelphia Fed Index declined, missing all economists’ forecasts and flashing a warning sign for manufacturing. Meanwhile, the European Central Bank cut interest rates for the seventh time since last June. The ECB remains ahead of the Fed in this easing cycle, having halved rates compared to the Fed’s roughly 20% reduction.
Equities
The S&P 500 returned -1.5%. Fed Chair Powell indicated a wait-and-see approach to the trade war’s impact on inflation and the economy, dashing hopes for immediate intervention. The dollar fell for a third week, and treasury yields fell. Mid cap and small cap stocks outperformed large caps, returning 0.9% and 1.1%, respectively. Technology (-3.7%), consumer discretionary (-3.2%), and communication services (-2.9%) were the worst performing sectors in the S&P500; real estate (+3.9%) and energy (+3.3%) were the leaders. EAFE markets returned 4.1% as President Trump indicated that trade deals with Japan and the EU were likely; EM markets returned +2.1%, again on trade deal optimism.
From a valuation perspective, only U.S. large caps trade above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +0.7. The NASDAQ is at +0.3. For the next 12 months, EPS growth for S&P 500 is expected to be 8.4% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 15.1% (vs. 10.7% annualized over the last 20 years). The S&P 500 (US Large Cap), NASDAQ, MSCI EAFE (Non-U.S. Developed Market Equities) and MSCI EM (EM Equities) trade at or above their 20-year averages based on forward P/E ratios while the Russell Midcap (U.S. Midcap) and the Russell 2000 (U.S. Small Cap) trade below.
Fixed Income
Investment grade fixed income sectors had positive returns as yields fell across the curve. Municipals returned +1.1%, U.S. AGG returned +0.9% and U.S. IG returned +1.2%. HY bond returned +1.3% as spreads compressed 21bps while bank loans returned +0.5%. EM debt returned +2.4% as the U.S. dollar fell 0.7%.
Rates
Rates fell across the curve as the Fed Chair Powell’s comments sent equities lower, and investors sought the safe haven of treasuries. The recession-watch 3M-10Y spread compressed 16bps and is now flat. The 2Y-10Y spread was unchanged +52. Rates fell in other developed markets as well other than in Japan. The BTP-Bund
spread is at 1.18%. 5-year breakeven inflation expectations were unchanged at 2.42% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations were unchanged at 2.23% (vs. recent low of 2.03% on Sept 10); the 10Y real yield fell 17bps to 2.09%. The market now expects between three and four cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.4% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index fell 0.7%. The commodities complex rose 2.6%, while energy prices rose 4.1% for the week. Brent prices rose 4.9% to $68/bbl. U.S. natural gas prices fell 8.0%, while European gas rose 6.6%.
Market monitors
Volatility fell for equities and for bonds (VIX = 30, MOVE = 115); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) remained negative at -32.
Weekly Commentary
Investment Commentary – April 21, 2025
Stuart Katz
Executive Summary
Last week was another round of “headline roulette” where Trump claimed a trade deal with the EU was imminent (though he provided no details or timeline); Trump was more specific about a U.S.-Ukraine minerals accord, saying a deal would be signed in a week; Trump addressed Powell on social media, saying his removal couldn’t come soon enough and again demanding immediate rate cuts. Trump’s comments regarding the Fed Chair were in response to Powell’s comments last week—stressing a wait-and-see stance on the trade war’s inflation impact—dampened hopes for quick Fed action. The “Fire Powell Trade” based on the reaction of risk markets is declining USD, equities, and 30-yr U.S. Treasury (price down/yield up) with an increase in gold and VIX (equity “fear index”).
Ongoing tariff reversals have eroded confidence in the world’s reserve currency, with the dollar extending its losing streak into a third week. The economic data on Thursday was mixed. Jobless claims fell to a two-month low, pointing to a resilient labor market. However, the Philadelphia Fed Index declined, missing all economists’ forecasts and flashing a warning sign for manufacturing. Meanwhile, the European Central Bank cut interest rates for the seventh time since last June. The ECB remains ahead of the Fed in this easing cycle, having halved rates compared to the Fed’s roughly 20% reduction.
Equities
The S&P 500 returned -1.5%. Fed Chair Powell indicated a wait-and-see approach to the trade war’s impact on inflation and the economy, dashing hopes for immediate intervention. The dollar fell for a third week, and treasury yields fell. Mid cap and small cap stocks outperformed large caps, returning 0.9% and 1.1%, respectively. Technology (-3.7%), consumer discretionary (-3.2%), and communication services (-2.9%) were the worst performing sectors in the S&P500; real estate (+3.9%) and energy (+3.3%) were the leaders. EAFE markets returned 4.1% as President Trump indicated that trade deals with Japan and the EU were likely; EM markets returned +2.1%, again on trade deal optimism.
From a valuation perspective, only U.S. large caps trade above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +0.7. The NASDAQ is at +0.3. For the next 12 months, EPS growth for S&P 500 is expected to be 8.4% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 15.1% (vs. 10.7% annualized over the last 20 years). The S&P 500 (US Large Cap), NASDAQ, MSCI EAFE (Non-U.S. Developed Market Equities) and MSCI EM (EM Equities) trade at or above their 20-year averages based on forward P/E ratios while the Russell Midcap (U.S. Midcap) and the Russell 2000 (U.S. Small Cap) trade below.
Fixed Income
Investment grade fixed income sectors had positive returns as yields fell across the curve. Municipals returned +1.1%, U.S. AGG returned +0.9% and U.S. IG returned +1.2%. HY bond returned +1.3% as spreads compressed 21bps while bank loans returned +0.5%. EM debt returned +2.4% as the U.S. dollar fell 0.7%.
Rates
Rates fell across the curve as the Fed Chair Powell’s comments sent equities lower, and investors sought the safe haven of treasuries. The recession-watch 3M-10Y spread compressed 16bps and is now flat. The 2Y-10Y spread was unchanged +52. Rates fell in other developed markets as well other than in Japan. The BTP-Bund
spread is at 1.18%. 5-year breakeven inflation expectations were unchanged at 2.42% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations were unchanged at 2.23% (vs. recent low of 2.03% on Sept 10); the 10Y real yield fell 17bps to 2.09%. The market now expects between three and four cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.4% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index fell 0.7%. The commodities complex rose 2.6%, while energy prices rose 4.1% for the week. Brent prices rose 4.9% to $68/bbl. U.S. natural gas prices fell 8.0%, while European gas rose 6.6%.
Market monitors
Volatility fell for equities and for bonds (VIX = 30, MOVE = 115); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) remained negative at -32.
Disclosure and Source
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