Executive Summary
The “soft” negative survey data has yet to show up in the “hard” economic data. The U.S. Market preliminary manufacturing PMI came in above estimates at 50.7. The services side came in below estimates but still an expansionary 51.4. U.S. equities outperformed European stocks last week but are still underperforming by 17% YTD. The EUR/USD was only up marginally in the week after surging for weeks. The U.S. dollar index was up 1% last week but is still down 8% YTD. European financials have completely recovered from the recent correction and hit new all-time highs last week, up 27% YTD. This week will be big for the European financials trade as several of the biggest companies report Q1 earnings, along with many of the Mag 7 companies in the United States.
Equities
The S&P 500 returned +4.6% as President Trump backed off his rhetoric to “fire” Fed Chair Powell and the administration began softening its stance towards the trade war with China. Good earnings from Alphabet and Elon Musk’s decision to step back from his duties at DOGE and return to Tesla powered large-cap technology names which buoyed the index. Technology (+7.9%), consumer discretionary (+7.5%3.2%), and communication services (+6.4%) were the best performing sectors in the S&P500; consumer staples (-1.3%) was the only sector in the red. EAFE markets returned 3.1%, and EM markets returned +2.9%, again based 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 +1.4. The NASDAQ is at +0.6. For the next 12 months, EPS growth for S&P 500 is expected to be 8.1% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 14.4% (vs. 10.7% annualized over the last 20 years). The S&P 500 (US Large Cap), NASDAQ, MSCI EAFE (Non-US 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 (US Midcap) and the Russell 2000 (US Small Cap) trade below.
Fixed Income
Investment grade fixed income sectors had positive returns as yields fell across the curve. Municipals returned +0.1%, U.S. AGG returned +0.7% and U.S. IG returned +1.0%. HY bond returned +1.3% as spreads compressed 38bps while bank loans returned +0.7%. EM debt returned +1.4% as the U.S. dollar rose 0.1%.
Rates
Rates fell across the curve as President Trump dialed down his aggressive stance against Fed Chairman Powell and the Fed’s policies. The recession-watch 3M-10Y spread compressed 7bps and is now negative again at -7. The 2Y-10Y spread was compressed 4bps to +48. Rates fell in other developed markets as well other than in Japan. The BTP-Bund spread is at 1.11%. 5-year breakeven inflation expectations fell 8bps to 2.34% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations rose 3bps to 2.27% (vs. a recent low of 2.03% on Sept 10); the 10Y real yield fell 11bps to 1.97%. 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 3.5% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index rose 0.1%. The commodities complex fell 0.2%, while energy prices fell 1.7% for the week. Brent prices fell 1.6 to $67/bbl. U.S. natural gas prices fell 9.5%, while European gas fell 8.9%.
Market monitors
Volatility fell for equities and for bonds (VIX = 25, MOVE = 106); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) remained negative at -34.
Weekly Commentary
Investment Commentary – April 28, 2025
Stuart Katz
Executive Summary
The “soft” negative survey data has yet to show up in the “hard” economic data. The U.S. Market preliminary manufacturing PMI came in above estimates at 50.7. The services side came in below estimates but still an expansionary 51.4. U.S. equities outperformed European stocks last week but are still underperforming by 17% YTD. The EUR/USD was only up marginally in the week after surging for weeks. The U.S. dollar index was up 1% last week but is still down 8% YTD. European financials have completely recovered from the recent correction and hit new all-time highs last week, up 27% YTD. This week will be big for the European financials trade as several of the biggest companies report Q1 earnings, along with many of the Mag 7 companies in the United States.
Equities
The S&P 500 returned +4.6% as President Trump backed off his rhetoric to “fire” Fed Chair Powell and the administration began softening its stance towards the trade war with China. Good earnings from Alphabet and Elon Musk’s decision to step back from his duties at DOGE and return to Tesla powered large-cap technology names which buoyed the index. Technology (+7.9%), consumer discretionary (+7.5%3.2%), and communication services (+6.4%) were the best performing sectors in the S&P500; consumer staples (-1.3%) was the only sector in the red. EAFE markets returned 3.1%, and EM markets returned +2.9%, again based 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 +1.4. The NASDAQ is at +0.6. For the next 12 months, EPS growth for S&P 500 is expected to be 8.1% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 14.4% (vs. 10.7% annualized over the last 20 years). The S&P 500 (US Large Cap), NASDAQ, MSCI EAFE (Non-US 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 (US Midcap) and the Russell 2000 (US Small Cap) trade below.
Fixed Income
Investment grade fixed income sectors had positive returns as yields fell across the curve. Municipals returned +0.1%, U.S. AGG returned +0.7% and U.S. IG returned +1.0%. HY bond returned +1.3% as spreads compressed 38bps while bank loans returned +0.7%. EM debt returned +1.4% as the U.S. dollar rose 0.1%.
Rates
Rates fell across the curve as President Trump dialed down his aggressive stance against Fed Chairman Powell and the Fed’s policies. The recession-watch 3M-10Y spread compressed 7bps and is now negative again at -7. The 2Y-10Y spread was compressed 4bps to +48. Rates fell in other developed markets as well other than in Japan. The BTP-Bund spread is at 1.11%. 5-year breakeven inflation expectations fell 8bps to 2.34% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations rose 3bps to 2.27% (vs. a recent low of 2.03% on Sept 10); the 10Y real yield fell 11bps to 1.97%. 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 3.5% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index rose 0.1%. The commodities complex fell 0.2%, while energy prices fell 1.7% for the week. Brent prices fell 1.6 to $67/bbl. U.S. natural gas prices fell 9.5%, while European gas fell 8.9%.
Market monitors
Volatility fell for equities and for bonds (VIX = 25, MOVE = 106); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) remained negative at -34.
Disclosure and Source
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