May 27th Market Overview

Happy Tuesday.

We are back! I hope you had a wonderful long weekend.

Over the weekend we got some relief regarding EU tariffs by extending the deadline to July 9. Markets welcomed the news, showing big gains.

Consumer confidence was much stronger than expected at 98, compared to the 86 forecast. This shows that people are starting to believe these trade deals could really happen. Tomorrow's NVDA earnings will be interesting.

Let's dig in...

Executive Summary

1. Broad Rally: All major indices snapped four-day losing streaks with tech leading gains as trade tensions eased substantially.
   

2. Sentiment Shift: Consumer confidence crushed expectations, jumping to 98 from 85.7, signaling Americans believe trade deals will happen.
   

3. Earnings Anticipation: Heavy Nvidia options activity at $145-150 strikes ahead of Wednesday's report following recent tariff-driven declines.
   

4. China Weakness: PDD Holdings posted worst trading day in company history as tariff impacts devastate Chinese e-commerce model.
   

Market Overview

Key Market Drivers

1. Tariff Politics: Trump's weekend call with EU Commission President von der Leyen delayed 50% levies until July 9, reversing June 1 threat.
   

2. Fed Dovishness: Minneapolis Fed President Kashkari said central bank lacks clarity to adjust rates before September, calling tariffs "stagflationary forces."
   

3. Economic Data: Durable goods orders fell 6.3% in April versus 7.8% forecast, with transportation equipment driving declines as April marked first full month under Trump tariffs.
   

4. Trade Pipeline: National Economic Council Director Hassett indicated additional deals could emerge this week, specifically mentioning India nearing completion while EU fast-tracks negotiations.
   

Stock Spotlight

PDD Holdings $PDD ( ▲ 1.96% ) faced its worst trading day after first-quarter profit fell to 14.7 billion yuan. Revenue growth slowed to 10%, the weakest in three years. Temu stopped shipping products to the US from China after losing small-package tariff exemptions.

Tesla $TSLA ( ▲ 0.46% ) gained on both tariff relief and CEO Elon Musk stating he’s returning to “24/7 work” focus. This despite European sales declining four straight months and BYD cutting prices on 22 models by up to 34% in China.

Trump Media $DJT ( ▲ 2.1% ) declined after announcing $2.5 billion capital raise to buy bitcoin. The plan includes $1.5 billion in equity and $1 billion in convertible debt.

AMC Entertainment $AMC ( ▼ 3.2% ) posted major gains after Memorial Day weekend box office hit $326 million, a new record driven by new Mission Impossible.

Big Name Updates

Apple $AAPL ( ▲ 0.83% ) ended eight-day losing streak. Morgan Stanley maintained overweight rating, saying 25% tariffs insufficient to drive US production reshoring.

Microsoft $MSFT ( ▲ 0.28% ) benefited from OpenAI user data showing 90% of college students used ChatGPT for assignments in January 2025, with teen usage doubling year-over-year.

Salesforce $CRM ( ▲ 1.09% ) announced $8 billion Informatica $INFA acquisition, marking M&A activity resumption after April’s drought. Goldman maintains buy rating with $340 target.

US Steel $X ( ▲ 0.43% ) advanced after sources confirmed Nippon Steel expects to close $55-per-share acquisition following Trump’s Friday approval. Deal includes $14 billion in investments over 14 months.

Other Notable Company News

Southwest Airlines $LUV ( ▼ 1.54% ) ended “Bags Fly Free” policy, charging $35 for first checked bag, $45 for second. Jefferies upgraded to Hold with $33 target.

WeRide $WRD ( ▼ 2.25% ) expanded into Saudi Arabia, launching Robotaxi trials on Uber and deploying autonomous vehicles in Riyadh and AlUla.

Sony $SONY ( ▼ 0.41% ) plans to spin off finance arm, distributing over 80% of shares to investors while keeping under 20%.

Wingstop $WING ( ▼ 0.77% ) got Truist upgrade to Buy with $400 target. Card data suggests May improvement and confidence same-store sales will trough in Q2.

PepsiCo $PEP ( ▲ 0.72% ) joined Formula 1 as official partner.

Sector Watch

Bond Market

Treasury markets joined global rally as longer-dated bonds gained across major economies. The 10-year yield settled at 4.445% after closing above 4.5% Friday.

• Japanese bonds saw the biggest moves, with 40-year yields dropping over 20 basis points on speculation Tokyo may reduce super-long bond issuance

• Dollar strengthened despite bond rally, with WSJ Dollar Index gaining after hitting September lows Friday

Policy Watch

EU agreed to fast-track trade negotiations following Trump’s tariff extension. European trade chief Maroš Šefčovič spoke with Commerce Secretary Lutnick and USTR Greer Monday.

• EU requested major business groups collect data on members’ US investments to support negotiations
• Swiss exports to US fell 36% in April, first full month under new tariffs, providing early evidence of trade impact
• China eased rare earth export curbs on neodymium and terbium, helping drone makers resume shipments

What to Watch

1. Nvidia Earnings Wednesday: After-market report could determine if AI trade recovers or continues bleeding. Options flow suggests 10%+ move expected either direction. Watch for China revenue guidance and data center demand commentary - any tariff impact mentions will move the entire semiconductor space.
   

2. Fed Minutes Friday: PCE inflation data alongside April meeting minutes will show how serious the Fed is about Kashkari's "no cuts before September" stance. Any dovish shift could extend today's rally, but hawkish surprise would pressure bonds and risk assets.
   

3. Trade Deal Momentum: Hassett's "few more deals this week" comment has traders watching for India announcement. Each deal extends the trade-optimism rally - we've seen 2.8% Dow gains just on rollback headlines before.
   

4. M&A Pipeline Heating Up: Salesforce dropping $8 billion on Informatica shows big tech has cash to spend and confidence is returning. April saw deal activity nearly freeze, but May has already seen over $125 billion in announced transactions. Watch smaller software and AI companies for sudden spikes - acquisition rumors have driven 20-30% overnight moves.
   
   Thanks for reading 🙂
   
   - John
   

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