Weekly Market Insights | U.S./China Tariff Truce Tames Markets

Stocks roared higher last week, powered by upbeat trade news and tame inflation reports. The Standard & Poor’s 500 Index rose 5.27 percent, while the Nasdaq Composite Index spiked 7.15 percent. The Dow Jones Industrial Average added 3.41 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, increased 0.80 percent.^1,2

S&P, Dow Erase YTD Losses

Stocks pushed higher on Monday as investors cheered weekend news that the U.S. and China temporarily agreed to back off steep reciprocal tariffs.³ Then, a mild inflation report for April—the slowest annualized Consumer Price Index (CPI) reading in four years—boosted markets on Tuesday. Tech stocks powered the rally as the S&P 500 closed trading in the green for the year.^4,5

Markets closed with gains for Friday, largely looking past weak consumer sentiment data being released. Friday was the Dow’s turn to erase year-to-date losses and get back in the green while the Nasdaq and S&P notched a five-day winning streak.⁶

All Eyes on Economic Data

The retail (CPI) and wholesale inflation reports (Producer Price Index) were mild, although most economists didn’t expect tariffs to impact prices in the first month of implementation. Retail sales ticked up slightly (as expected), while industrial production and housing starts showed signs of tariff impact.^7,8 Expect traders to continue to closely watch economic reports to better understand whether tariffs are showing up in the data.

This past week, we saw a spike in 20-day highs in stocks, which is a solid escape velocity signal referred to as "The deGraaf Thrust Indicator" which you may have seen floating around on Twitter/X this past week. Some market gurus now think it is fairly safe to say the worst is behind us and now it is a probabilities game, and are looking for things that help fuel positive probabilities. Reflecting back on previous bear markets, very rarely did we see twenty-day stock market highs expand in the way they did this past week. 

What a reversal we have witnessed in the equity markets! About a month ago the outlook for the economy was stagflation and the outlook for stocks was bordering on a lost decade similar to what was witnessed in the 1970s and 2001-2009.

Oh how things have changed!  In the past month, the S&P 500 has surged over 13%, the VIX (volatility or fear gauge) has dropped dramatically and sentiment indicators have swung more bullish, with the CNN Fear/Greed Index back in the Greed category at around 70 (close to extreme greed, which starts at 75), exploding from a very negative reading of  about 19 just a month ago. Many analysts are now positive on stocks and are touting a continued rally and even new highs coming in the S&P 500!

Over the weekend, Moody’s downgraded the US debt credit rating and equity market futures are down about 0.7% as of 9PM EST Sunday evening, but Scott Bessent, US Treasury Secretary, explained in a weekend interview on Forbes that the deficits will be eclipsed by the growth in the US economy. I personally recall the same skepticism and concerns with Ronald Reagan’s growth policies which resulted in economic growth for over a decade and budget surpluses in the early Bill Clinton years. I think what we are now witnessing with Trump’s policies are Reaganomics on steroids which will once again allow the USA to grow out of the debt hole left by prior administrations.

Over in the crypto space, Bitcoin remained relatively stable, hovering near the $104,000 mark throughout the past week, facing resistance around $105,000 which it has surpassed as of Sunday evening. 

Ethereum update - After the successful deployment last week of Pectra, Ethereum's biggest upgrade in more than a year, the network's core developers are already shifting focus to the next major chain upgrade: Fusaka.  Pectra, the biggest code change to Ethereum since the Merge in 2022, introduced key changes aimed at making staking easier for institutions, improving wallet accessibility, and boosting transaction efficiency.

Developers have already begun planning for Fusaka, the network's next upgrade, and have thus far agreed to include an Ethereum Improvement Proposal (EIP) called "PeerDAS" that could help the network support larger "blobs" of transaction data. Ethereum experienced a notable increase, surpassing $2,600 midweek before settling lower by week's end and is trading at around $2450 on Sunday evening. 

Bond Markets: Looking forward, the ten year US government bond yield has now reached a level where it will become a headwind on stocks the higher it goes. If economic data remains strong, yields may keep rising and that headwind will strengthen for equities. A key level to watch remains 4.80% in the ten year yield which is the recent high and if that level is breached, look for higher yields to become a direct headwind on stocks (while a decline back towards 4.30% or lower would be a mild tailwind).

Gold: The shiny yellow precious metal extended a pullback from the all-time highs and its failed breakout to new highs in early May, and breakdown through support near $3,250 where it sits Sunday evening up 2% in the futures markets.

The better trade-war sentiment continues to trend, the more the prospects are that down-side in the weeks ahead for gold. On the other hand, new trade tensions could quickly send gold back towards record highs. However, I think gold is a true store of value and will continue to be a good alternative holding and hedge against rising global debt loads. 

Partner with a Certified Financial Fiduciary at Castle Financial - In these volatile and uncertain times, the biggest value of working with a seasoned advisor, acting as a fiduciary, is having someone to help control emotions and not get caught up in making bad investment decisions. Let's face it, when times are turbulent, emotions will often trump logic, leading to devastating financial decisions. 

Email julie@castlefinancial.com or call us at 732-888-4994 to schedule a complimentary 30 minute consultation and second opinion if you are not already a valued client of Castle Financial.

This Week: Key Economic Data

Monday: New York Fed President John Williams, Dallas Fed President Lorie Logan, and Atlanta Fed President Raphael Bostic speak. Leading Economic Indicators. E-Commerce Retail Sales.

Tuesday: Richmond Fed President Thomas Barkin, Raphael Bostic, and Fed Governor Adriana Kugler speak. Financial Markets Conference.

Wednesday: Thomas Barkin speaks. 20-Year Treasury Bond Auction.

Thursday: Existing Home Sales. Jobless Claims (weekly). PMI Composite—Services and Manufacturing. John Williams speaks. Fed Balance Sheet.

Friday: New Home Sales. Kansas City Fed President Jeff Schmid and Fed Governor Lisa Cook speak.

^{Source: Investors Business Daily - Econoday economic calendar; May 16, 2025
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.}

This Week: Companies Reporting Earnings

Tuesday: The Home Depot, Inc. (HD), Palo Alto Networks, Inc. (PANW)

Wednesday: The TJX Companies Inc. (TJX), Lowe’s Companies, Inc. (LOW)

Thursday: Intuit Inc. (INTU), Analog Devices, Inc. (ADI), The Toronto Dominion Bank (TD), Workday, Inc. (WDAY)

^{Source: Zacks, May 16, 2025. Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.}

"People always call it luck when you've acted more sensibly than they have."

– Anne Tyler

The IRS May Send You One of Two Notices If Your Filed Returns Don’t Match Their Records

Have you wondered what happens if the information on your tax return doesn’t match the IRS records? The IRS mails out two notices, CP2100 and CP2100A, to banks, credit unions, businesses, and payers who may have made a mistake on their return. 

The IRS mails these notices out twice yearly, in September/October and April of the following year. Payers may receive a notice if their return lacks a Taxpayer Identification Number, has an incorrect name, or both. The notices also tell payers that they are responsible for backup withholding.

This information is not a substitute for individualized tax advice. Please discuss your specific tax issues with a qualified tax professional. 

Tip adapted from IRS⁹

This Cognitive Behavioral Exercise Can Help Quiet Your Negative Self-Talk

We all have that little negative voice in our heads, and one way to combat it is to change how we think about situations. Stressful things will always happen, but the goal is to change your feelings about those stressful situations. 

To practice this exercise, separate a piece of paper into three columns. One is for your negative thoughts, one is for the cognitive distortion at play, and one is for your rational response (thinking logically about your feelings). Here’s an example:

Negative thought: I did horribly on my presentation today and am getting fired. 
Cognitive distortion: All-or-nothing thinking, jumping to conclusions.
Rational response: Maybe it wasn’t my best presentation, but overall, the quality of my work is good.

These cognitive exercises take a lot of practice but can help silence your inner critic.

Tip adapted from Healthline¹⁰

What can go down a chimney when it is down but can’t go up through a chimney when it is up?

Last week’s riddle: What always shows up in the middle of March and the middle of April?
Answer: The letter "R."

Ring-neck Pheasant
Utah, United States

Footnotes and Sources

^{1. WSJ.com, May 16, 2025}

^{2. Investing.com, May 16, 2025}

^{3. CNBC.com, May 12, 2025}

^{4. WSJ.com,  May 13, 2025}

^{5. CNBC.com, May 15, 2025}

^{6. MarketWatch.com, May 16, 2025}

^{7. WSJ.com, May 13, 2025}

^{8. MarketWatch.com, May 16, 2025}

^{9. IRS.gov, September 11, 2024}

^{10. Healthline, December 12, 2024}