May 16th Market Overview

Happy Friday.

Markets pushing higher to cap off another strong week. Consumer sentiment hit near-record lows with inflation expectations jumping to 7.3%, but investors clearly are not worried. The S&P is wrapping up a five-day winning streak with tech stocks leading the charge – $NVDA alone up double digits this week on those massive UAE chip deals.

Wild to see stocks this strong with so many warning signs, but that 90-day China truce seems to be the safety net everyone needed.

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Let's dig in...

Executive Summary

1. Markets defied negative sentiment data to post a fifth consecutive winning session, with the S&P 500 up 5% for the week and Nasdaq jumping 6%.
   

2. Trump administration plans to bypass traditional negotiations by sending standardized tariff rate letters to global trading partners within 2-3 weeks, citing inability to meet with "150 countries seeking deals."
   

3. Consumer sentiment crashed to 50.8 in the University of Michigan survey, its second-lowest reading on record, while inflation expectations surged to 7.3% – a concerning combination for economic outlook.
   

4. The market's resilience stems from strong Q1 corporate earnings and the recent 90-day China tariff truce, which appears to have temporarily neutralized the biggest trade risk in investors' minds.
   

Market Overview

Key Market Drivers

1. Trade Policy Shift: Trump’s administration will unilaterally set tariff rates for multiple countries via letters in the next 2-3 weeks. This approach replaces individual negotiations, which Trump called impractical with 150 countries seeking deals.

2. Consumer Sentiment Collapse: The University of Michigan’s index fell to 50.8, its second-lowest reading on record. Nearly three-quarters of consumers spontaneously mentioned tariffs, showing how trade uncertainty dominates economic outlook.

3. Housing Market Weakness: Housing starts rose just 1.6% last month, below expectations, while building permits dropped 4.7%, indicating persistent challenges in this key sector.

4. Atlanta Fed Growth Estimate: Atlanta Fed President Raphael Bostic projected economic growth may slow to between 0.5% and 1% this year, and expects only one rate cut amid continued uncertainty.
   

Stock Spotlight

Charter Communications $CHTR ( ▲ 1.79% ) agreed to merge with Cox Communications in a $21.9 billion deal. The combined company will eventually adopt the Cox name.

Nvidia $NVDA ( ▲ 0.29% ) secured a preliminary deal to send 500,000 of its most advanced AI chips annually to the UAE starting in 2025. T

Novo Nordisk $NVO ( ▼ 2.95% ) surprised markets with the announcement that CEO Lars Fruergaard Jørgensen will step down.

Coinbase $COIN ( ▲ 7.43% ) recovered after analysts dismissed concerns about an SEC investigation into potentially misstated user numbers.

Big Name Updates

Microsoft $MSFT ( ▲ 0.06% ) proposed selling Office without Teams at a lower price and offering rivals better interoperability to resolve EU antitrust concerns.

Meta $META ( ▼ 0.59% ) delayed its flagship Llama 4 AI model “Behemoth” rollout, citing underwhelming performance. The release has been pushed from spring to fall or later.

Apple $AAPL ( ▲ 0.08% ) faces a conflict with Epic Games, which reported that Fortnite has been blocked from both U.S. and EU App Stores. The game will remain offline on iOS until Apple reverses its decision.

Other Notable Company News

Vistra Corp $VST ( ▲ 2.95% ) purchased seven natural gas facilities from Lotus Infrastructure Partners for $1.9 billion, diversifying its fleet across PJM, New England, New York, and California markets.

Galaxy Digital $GLXY ( 0.0% ) began trading on the Nasdaq after a multi-year battle with U.S. regulators. CEO Mike Novogratz highlighted the company’s focus on two high-growth areas: crypto and artificial intelligence.

Constellation Brands $STZ ( ▲ 2.68% ) attracted Warren Buffett’s attention, with Berkshire Hathaway doubling its stake to a position now worth approximately $2.2 billion.

Cava Group $CAVA ( ▼ 2.09% ) reported Q1 earnings with EPS of 22 cents versus the expected 15 cents, maintaining an impressive same-restaurant sales growth projection of 6-8%.

Sector Watch

Bond Market

• Treasury yields declined for a second consecutive day, with the 10-year settling at 4.443%.

Yield reduction comes despite rising inflation expectations, indicating bond traders may be more concerned with economic growth than near-term inflation pressures.

Policy Watch

1. • President Trump's unilateral tariff announcement represents a strategic pivot from case-by-case trade negotiations to a broader approach.
   

2. • European Union exports to the U.S. surged 56% in March from the previous year as companies rushed shipments ahead of anticipated tariffs, pushing the EU's trade surplus with the U.S. to a record €37 billion.
   

3. • Former Fed Chair Ben Bernanke advocated for increased central bank transparency, suggesting the Fed should better communicate its economic thinking to the public.
   

4. • South Korea indicated a U.S. trade deal remains possible despite the approaching July 8 deadline, with progress on auto and steel issues.
   

What to Watch

1. Retail Earnings Week: With Walmart sounding the tariff alarm, watch Home Depot, Target, and Lowe’s reports.

   • These companies will provide critical insights into consumer spending

   • Management commentary on pricing strategies will reveal inflation expectations

   • Their ability to pass costs to consumers may determine sector performance
     

2. Housing Data: Following disappointing construction figures, upcoming reports will shape market sentiment.

   • The spring selling season has been challenging so far

   • Rising mortgage rates continue to pressure affordability

   • Builder sentiment could provide early signals of market direction
     

3. Middle East Investment Flow: The UAE’s planned $1.4 trillion U.S. investment deserves attention.

   • Semiconductor sector positioned as a primary beneficiary

   • Watch for specific company announcements beyond the Nvidia deal

   • Implementation details expected to emerge in coming weeks
     
     Thanks for reading 🙂
     
     - John
     

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