Monday Opens With China Trade Deal – Equities, Yields, Oil, Bitcoin Up, Gold Down

Market Commentary – May 12, 2025

We have been of the view that the April 7th low of 4835 on the S&P 500 was the low, and we did not have to test it based on the strength of the equity market rally.

We have had buy signals for weeks on the equity market and continue to get more. On Monday morning, we woke up to a temporary deal on tariffs with China for 90 days. Stocks, yields, oil and bitcoin are rallying sharply, with gold falling. We believe this deal will allow the equity markets to rally into the summer, with the S&P 500 likely to test the all-time high of 6147. We maintain a 12-month forecast on the S&P 500 of 6550, so we remain buyers of this market.

Two Steps Forward, One Step Back

Last week the Federal Reserve (Fed) held its monthly FOMC (Federal Open Market Committee) meeting and, as expected by the market, there was no change in interest rates. Fed Chair Jerome Powell said the economy is “in a good place to wait and see,” highlighting the Fed’s cautious approach in assessing future data before making any policy changes. In speaking to the impact of tariffs over time, Powell used the word “uncertainty” or implied “uncertainty” several times during the press conference. So far employment data is still strong. Inflation data has been behaving, but last week, unit labor costs came in higher than expected, causing concern that inflation was impacting the 10-year Treasury yield, moving it higher. However, 5-year Breakevens are not reflecting concerns over inflation.

Earnings continue to come in better than expected, but the big news last week was the tariff deal with the United Kingdom and the meeting over the weekend with China to discuss tariffs.

Economic data and tariff deals – and the market response to both – could be a “two steps forward one step back” process, but the trend for the market and the tariffs is on the upside.

For A Meaningful Correction, All The Bears Need To Become Bulls

Tariffs – and the concerns over what the tariffs mean for the economy and markets – have created a lot of Bears versus Bulls – on both the professional and retail levels. Sentiment indicators that measure the readings for the Bulls and Bears are clearly into bearish territory, generating buy signals. These are contrarian indicators, meaning when the crowd is all in the same corner, the oppositive happens. So, in order to have a meaningful correction, we need all the Bears to turn Bullish.