Market Outlook
Last week, domestic equities lagged their international counterparts, waiting on progress in tariff negotiations. From a style perspective, U.S. value stocks outperformed growth, while small- and mid-cap equities outpaced larger-capitalization stocks. U.S. monetary policy was left unchanged at the Federal Reserve’s (Fed’s) May Federal Open Market Committee (FOMC) meeting as the Fed remains data dependent in its approach to determining the forward path of interest rates. Soft economic data remains mixed as seen by a key leading indicator, the ISM® Services PMI®, which rebounded in its latest reading; both prices paid and new orders reached highs for the year.
In emerging markets, positive performance by most countries, led by China’s surprise increase in exports, was offset by escalating geopolitical tensions in South Asia.
This week, the highly anticipated retail sales report and release of April industrial production data should provide insight on how consumers and businesses are responding to fiscal policy uncertainty, which continues to pressure already elevated financial market volatility.
Table of the Week
As first-quarter earnings season comes to an end, the blended growth rate sits at a robust 13.4%, well above the initial projection of 7.2%. If it holds, this will mark the seventh consecutive quarter of year-over-year growth for the index.
Every sector except Energy has exceeded initial estimates from the start of the quarter. Key themes for the quarter included solid margin expansion and resilient spending trends.
That said, second-quarter estimates have declined more than 600 basis points (bps), and full year 2025 estimates have declined 475 bps since the start of the year, reflecting cautious guidance by most companies amid uncertainty from shifting fiscal and monetary policies.
