U.S. stocks took a breather last week, dipping slightly after a strong rally. The decline was led by health care and communication services, while global headlines focused on trade discussions between the U.S., U.K., and China. Here’s what stood out—and what we’re watching in the week ahead.
Why Did the Stock Market Pull Back Last Week?
After several weeks of growth, the market gave back some recent gains. Health care, communication services, and consumer staples lagged. Alphabet, Google’s parent company, came under pressure after reports that the Department of Justice may push to break up parts of its advertising business.
Despite the pullback, some global trade news was promising:
- The U.S. and the U.K. announced a new tariff agreement.
- U.S. and Chinese officials met in Switzerland to talk trade, especially around tariff policy.
What Does Consumer Sentiment Tell Us About the Economy?
One major headline last week was the drop in consumer sentiment. But let’s break that down.
The University of Michigan’s Consumer Sentiment Survey has been around since 1946. It asks about 1,000 people how they feel about current economic conditions and their future expectations. Last week’s preliminary May reading showed one of the steepest declines in years.
Why the big drop?
- Tariff news: Concerns about price hikes from new tariffs likely rattled consumers.
- Survey changes: In 2024, the survey moved from phone to online. That shift may introduce bias.
- Election season: Political leanings often affect sentiment readings.
- Emotional response: Big policy announcements can cause initial overreactions.
Even with these factors, consumer sentiment still matters. Why? Because consumer spending makes up nearly 70% of the U.S. economy. But like any survey, it should be viewed in context.
Inflation and Interest Rates: What to Know This Week
The Federal Reserve held interest rates steady at 4.5% last week. Fed Chair Jerome Powell emphasized a wait-and-see approach, especially with new tariffs possibly impacting prices.
Meanwhile, inflation data is in the spotlight:
- Consumer Price Index (CPI): April CPI data is expected to show a modest monthly increase. Year-over-year numbers may hold near 2.3% (headline) and 2.8% (core, excluding food and energy).
- Producer Price Index (PPI): Set for release Wednesday, this reflects wholesale prices.
U.S. Trade Deficit and Inventories: What Happened?
The U.S. trade deficit widened to $140.5 billion in March, larger than expected. Some analysts think companies imported more in advance of potential tariffs.
On the inventory front, wholesale inventories rose 0.4% in March, slightly less than anticipated. Certain sectors, including farm equipment and lumber, saw lower stock levels.
Treasury Yields Edge Higher
Interest rates rose slightly across the board. The 10-year Treasury yield climbed to 4.38% by the end of the week. This reflects:
- The Fed’s pause on rate hikes.
- Ongoing trade negotiations.
- Anticipation of upcoming inflation data.
Economic Reports to Watch This Week
Here’s what’s coming up:
Tuesday, May 13
- April CPI: Key data for both consumers and markets
Wednesday, May 14
- April Retail Sales: Expected to stay flat
- April PPI: A measure of wholesale inflation, projected to rise slightly
Thursday, May 15
- University of Michigan Consumer Sentiment: Forecast to rise after last month’s sharp drop
The Big Picture: Stay Focused on the Long Term
Weekly market moves and headlines can feel like a rollercoaster. But long-term investors benefit from staying grounded.
To quote Meb Faber, cofounder of Cambria Investments:
“Most investors try to be Nostradamus when they should aspire to be Rip Van Winkle.”
In other words, instead of reacting to every twist and turn, focus on having a plan that supports your goals, no matter what the headlines say.
Tom Hine is a CERTIFIED FINANCIAL PLANNER® professional and owner of Capital Wealth Management. With over 30 years of experience, Tom works with individuals and families on financial planning, retirement strategies, and investment management. He has a particular passion for special needs financial planning, shaped by his personal experience helping raise his sister Amy, who was born with a severe chromosomal condition. Tom understands the emotional and financial challenges that come with caring for a loved one with disabilities and helps clients navigate complex issues like preserving government benefit eligibility, coordinating Special Needs Trusts and ABLE accounts, and long-term care planning. With offices in Glastonbury and Wilton, CT, Tom serves clients across Connecticut and throughout the U.S. Schedule a complimentary introductory meeting with Tom.
Disclosures: This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.
Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent. One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice.