May 7th Market Overview

Happy Wednesday.

Interesting market today as the Fed held steady while acknowledging both sides of their mandate face challenges. Some nice moves in Disney pushing the Dow higher, while the morning pop from U.S.-China trade talk headlines cooled off after Powell's press conference. Rotation continues to be the name of the game.

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Let's dig in...

Executive Summary

• Fed warns of simultaneous risks to inflation and employment while keeping rates steady

• Trump firmly rejects easing tariffs ahead of Swiss trade talks: “No” to any reduction

• Tech sector under pressure as Apple’s services chief suggests AI could replace traditional search

• Used vehicle prices jump to highest level since 2023 amid tariff concerns

Market Overview

Key Market Drivers

1. Powell's Triple Threat Warning: Powell bluntly outlined how tariffs could create the perfect storm of higher prices, weaker growth, and rising unemployment. His emphasis that the Fed "cannot be preemptive" with cuts signaled inflation concerns still outweigh growth risks.
   

2. Search Shake Up: Apple's services chief testified that AI assistants could replace traditional search engines, threatening Google's most profitable partnership. Alphabet shares tumbled as investors processed the potential revenue impact.
   

3. Trade Talk: While Bessent heads to Switzerland for China talks, Trump firmly rejected tariff reductions as a starting point. JPMorgan's Kelly called the Fed statement "a shot across the bow" warning about stagflationary trade policies.
   

4. Consumer Mixed Signals: JPMorgan data showed spending growth slowed to 2.3% in April from March's 2.7%. Meanwhile, used vehicle prices jumped nearly 5% year-over-year to October 2023 levels as consumers hedge against tariff-driven new car increases.
   

Stock Spotlight

Walt Disney $DIS ( ▼ 1.69% ) shares jumped after reporting stronger-than-expected EPS of $1.45 vs $1.20 expected and raising full-year earnings outlook to $5.75 per share. The company also announced a new Abu Dhabi theme park in partnership with Miral.

Charles River Laboratories $CRL ( ▼ 5.96% ) and Rockwell Automation $ROK ( ▼ 2.05% ) led S&P 500 higher after both companies delivered earnings that handily beat Wall Street expectations.

Alphabet $GOOGL ( ▲ 2.79% ) shares declined after Apple’s services chief suggested AI search functions could reshape Safari browser, potentially ending their lucrative partnership.

Uber $UBER ( ▼ 3.48% ) moved lower after missing revenue expectations despite delivering solid growth in trip bookings year-over-year.

Big Name Updates

Sony Pictures Entertainment $SONY ( ▼ 3.53% ) CEO Ravi Ahuja addressed the potential 100% tariff on foreign-made films at the Milken Institute Global Conference, indicating the company would continue production abroad while urging California to make domestic film production more cost-effective.

Apple $AAPL ( ▼ 2.31% ) services chief Eddy Cue told a federal court he believes AI assistants will eventually replace traditional search engines, eyeing OpenAI, Perplexity and Anthropic as potential Safari search options. This testimony came during the Justice Department’s lawsuit against Alphabet.

TCW Group CEO Katie Koch expects market volatility to increase amid continuing economic uncertainty. Speaking at the Milken Institute Global Conference, she noted TCW has “a lot of dry powder” to deploy when opportunities arise, maintaining long-term optimism about AI and energy sectors.

Advanced Micro Devices $AMD ( ▼ 1.28% ) shares moved higher after hours as the chipmaker reported stronger-than-expected Q1 results, with earnings of 96 cents per share on revenues of $7.44 billion against analyst projections of 94 cents and $7.13 billion.

Other Notable Company News

Carvana $CVNA ( ▼ 3.37% ) benefiting from used car market trends, with shares climbing this year as the Manheim Used Vehicle Value Index reached its highest level since October 2023.

Novo Nordisk $NVO ( 0.0% ) shares moved higher after CEO Lars Fruergaard Jørgensen told CNBC it expects Wegovy sales to improve in H2 2025: “Compounders took a part of our business away. We now expect that compounding will be knocked off.”

Honeywell International $HON ( ▼ 1.42% ) received an upgrade to buy at Bank of America with a $250 price target. Analyst Andrew Obin cited its “more defensive” business mix compared to industrial peers.

Sector Watch

Bond Market

• Treasury yields edged lower with the benchmark 10-year settling at 4.284%

Policy Watch

• Fed statement explicitly acknowledged "the risks of higher unemployment and higher inflation have risen"
  

• Powell warned tariffs at current levels could delay Fed's timeline for achieving its goals "for the next year or so"
  

• Chair established clear boundaries on fiscal matters: "They don't need my advice on fiscal policy, any more than we need their advice"
  

• Committee unanimously voted to maintain current interest rate range, highlighting unusual consensus amid economic uncertainty
  
  

What to Watch

1. Swiss Trade Talks: Bessent-China meeting outcomes this weekend.
   
   • Trump’s firm stance against tariff reduction sets challenging negotiation parameters
   • Watch for any statements from Treasury following the meetings
   • Potential market reactions Monday based on progress signals
   

2. Regional Banking Weakness: KRE heading for third straight negative session.
   
   • Park National, Oceanfirst Financial and Preferred Bank all trading down
   • Potential indicator of broader financial sector stress
   • Monitoring for contagion to larger institutions
   

3. Consumer Spending Data: Following mixed credit card reports.
   
   • JPMorgan reported growth slowdown to 2.3% YoY versus 2.7% in March
   • Citi noted declining consumer spending Feb-April
   • Retail earnings in coming weeks will provide further clarity

   
   
   Thanks for reading 🙂
   
   - John
   

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