We had a positive week in the markets with trade war tensions somewhat calmer and overall better earnings reports in the US. The equity indexes finished 3 to 7% higher, while US Treasury yields were 5 to 10 bps lower, followed by a rally in credit across the board, with spreads in US investment grade, high yield, and emerging markets bonds all 5 to 20 bps tighter.
Trump said he expects to conclude trade deals with other countries seeking lower tariffs in three to four weeks. Meanwhile, investors are looking for signs that the US and China will engage in lower tariffs, but relations seem to still be at an impasse.
Looking at the Magnificent 7 tech companies, Alphabet (Google) reported strong results, helping to offset the very weak quarter from Tesla, which reported a 71% plunge in profits. Regarding economic data, the US Purchasing Managers' Index (PMI) decreased in April, indicating the slowest growth in the private sector in 16 months, and the Michigan Consumer Sentiment Index came in better than expected.
Investors are awaiting more insights on the impacts of Trump's trade war, with a busy week of corporate earnings and economic reports coming up, including jobs and inflation data. We see little reason to think volatility is in the rearview mirror and expect a choppy market in the short term until clarity is achieved on the effect of tariffs on corporate earnings.
