The Mood Has Improved

Don't look now fans, but the US stocks were higher for the week – again, with the S&P 500 notching its first back-to-back weekly advances since January. For those keeping score at home, the venerable blue-chip index finished the week on a nine-day heater – the longest win-streak in more than 20 years (November 2004).
The S&P is now back to levels above the early April drop following Trump's "Liberation Day" tariff announcements and is -7.5% off its all-time high. From a technical perspective, the index finished above the 50-day moving average and could soon test the all-important 200-day, currently residing at 5746.
What Happened This Week?
The market mood continued to improve last week, helped by further signs of deescalating trade/tariff tensions and Trump's backpedal on Powell. On Tuesday, the President signed an order confirming some temporary relief for US automakers. Treasury Secretary Bessent and Commerce Secretary Lutnick also talked up ongoing negotiations, with Lutnick saying one trade deal was done and just awaiting final approval.
Also on the trade front, Mexico's Sheinbaum said she had a very positive conversation with Trump and that work on improving her country's trade relationship with the US will continue.
Turning to China, while the debate about US-China talks continued to play out (they're talking, they're not talking... but wait, maybe they are talking) China said it was "evaluating" recent US overtures, and media reports Friday suggested Beijing may be considering opening talks on fentanyl as a way to jump-start broader negotiations.
The State of the Economy
It was a big week for economic data with the majority coming in better than expected. The Big Daddy report was the April nonfarm payrolls, which surprised to the upside, putting a huge dent in the “we're in a recession now” argument. Next, ISM manufacturing was better than consensus. In addition, March core PCE was cooler, and March pending-home sales printed at their strongest levels since 2023. Not bad.
Looking Past the Bad News
Investors even looked past the bad news after the first quarterly decline in GDP since Q1'22. While the headline was jarring, most analysts understood drop in GDP was impacted by a huge surge of imports - from those companies front-running tariffs. (Imports count against exports, which then factors into GDP.)
However, while the mood on the street was upbeat, it is worth noting that April's consumer confidence report continued to reflect anxiety as the headline came in at its lowest level since spring 2020.
But… we think it is important to remember that sentiment data appear to be skewed by political leanings these days. The Dems see the sky falling, which is about half the country. As such, we're taking any/all sentiment with a grain of salt right now.
What About Earnings?
We are in the heart of earnings season with more than 100 companies reporting last week and another 90+ this week. So far, the Q1 earnings season has outperformed expectations, with the blended EPS growth rate for the S&P 500 now sitting at +12.8% (in contrast to the +7.2% expected on 30-Mar).
Corporate commentary has also been constructive, with consumer resilience continuing to be an important theme, tariff-mitigation efforts, and a still robust AI secular growth narrative.
Looking Ahead</p>
After a robust bounce, which has triggered quite a few price and breadth buy signals, the question of the day is how much room the bulls have left to run.
While we're just spit ballin' here, the S&P's 200-day looks like the next logical target. And with valuations still in very elevated, we wouldn't be surprised to see the bears reload somewhere in this vicinity (approx. 5750).
The good news is that consensus EPS for 2025 remain strong at approximately 12% - even after all the recent write downs relating to tariffs. And then if you want to be optimistic, it is worth noting that consensus EPS for 2026 currently sits at 14%.
So, as we've been saying for some time now, IF (note the use of all caps) earnings can come in reasonably close to expectations – which would assume no meaningful economic downturn – then stocks at all-time highs could certainly follow.
The only problem is that it's only May and there is a lot of time that needs to go by in order for those earnings to come in. Fingers crossed!
Finally
The Fed will hold its May FOMC meeting next week. The broad expectations is that Jay Powell & Company will leave rates unchanged. Fedspeak will resume after the blackout, with NY Fed's Williams set to deliver remarks on Friday while Governor Cook and regional presidents Musalem and Hammack also speaking.
It will be a fairly light week on the economic front, with the big reports April ISM Services (Monday); March US trade balance (Tuesday); and weekly jobless claims and Q1 productivity (Thursday).
It will also be another big week of Q1 earnings reports (92 S&P constituents), though we are now past most of the megacap names. NVDA, the last of the Mag 7 names to report, will not release until 28-May. Also of note, Palantir (PLTR) reports on Monday after the close.
Thought for the Day:
What lies behind us and what lies before us are tiny matters compared to what lies within us. -Ralph Waldo Emerson
Wishing you green screens and all the best for a great day,
David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research, a Registered Investment Advisor
Disclosures
At the time of publication, Mr. Moenning held long positions in the following securities mentioned: NVDA, PLTR - Note that positions may change at any time.
NOT INDIVIDUAL INVESTMENT ADVICE. IMPORTANT FURTHER DISCLOSURES