May 8th Market Overview

Happy Wednesday.

Solid bounce across the board today as Trump delivered his first trade deal framework with the UK. Tech caught a bid on news the administration will roll back chip export restrictions - a welcome development for semis that have been under pressure.

Worth noting: Small caps outperformed with the Russell up over 2%, traders seem more willing to step back into risk. The Fed's stagflation warnings yesterday didn't seem to dampen spirits much.


Let's dig in...

Executive Summary

• Trump unveiled a “full and comprehensive” trade framework with the UK, maintaining a 10% baseline tariff
  

• Commerce Department plans to overhaul AI chip export restrictions, benefiting semiconductor companies
  

• Treasury Secretary Bessent heads to Switzerland this weekend for preliminary China trade talks
  

• Fed maintained rates while warning of rising inflation and unemployment risks from sustained tariffs
  

• Q1 productivity contracted while labor costs jumped, but weekly jobless claims declined
  

Market Overview

Key Market Drivers

1. US-UK Trade Framework: First major trade agreement since implementing global tariffs. Commerce Secretary Lutnick indicated the deal would lead to a significant Boeing $BA aircraft order. Trump called it “the first of many” agreements to come, but provided limited details on implementation.
   

2. AI Chip Export Relief: Commerce Department will replace rules capping AI chip exports to countries including India, Switzerland, Mexico, and Israel. This follows industry pushback, particularly from Nvidia $NVDA, and represents a significant policy shift from Biden-era restrictions.
   

3. China Trade Prospects: Bessent and Trade Representative Greer meet Chinese counterparts this weekend in Switzerland. Trump expressed optimism for a “good weekend” but maintains he’s “not open to pulling back 145% tariff.” China’s Ministry of Commerce stated the US needs to be prepared to revoke unilateral tariffs.
   

4. Fed Policy Stance: Powell emphasized “extreme uncertainty” in the economy, warning that “the risks of higher unemployment and higher inflation have risen.” The Fed sees itself as “well positioned to wait for more clarity” despite Trump’s criticism of Powell as a “fool” for not cutting rates.
   

5. Economic Indicators: Q1 nonfarm productivity contracted 0.8% while unit labor costs rose 5.7%. Initial jobless claims fell to 228,000, down from the prior week’s spike that was mainly driven by New York school closures for spring break.
   

Stock Spotlight

Alphabet $GOOGL ( ▲ 2.51% ) rebounded after confirming “we continue to see overall query growth in Search” and “an increase in total queries coming from Apple’s devices.” This directly counters reports citing an Apple executive about Safari search decline as users shift to AI.

Boeing $BA ( ▲ 3.84% ) gained after Lutnick announced the UK would purchase $10 billion worth of Boeing planes as part of the trade framework. Separately, China Airlines ordered up to 23 777X jets, including 10 777-9s and four 777-8 Freighters.

Warner Bros. Discovery $WBD ( ▲ 5.02% ) jumped on reports the company may split its streaming and linear TV assets into separate entities. This potential restructuring could help address the company’s substantial debt load stemming from its 2022 merger.

AppLovin $APP ( ▲ 12.32% ) climbed after beating Q1 expectations and announcing the sale of its mobile gaming business to Tripledot Studios for $400 million in cash plus a 20% equity stake in Tripledot.

Arm Holdings $ARM ( ▼ 5.33% ) declined despite beating fiscal Q4 earnings expectations. The company provided weaker-than-expected guidance for fiscal Q1 and the full year 2026, with CFO Jason Child citing tariff uncertainty and lack of partner visibility.

Big Name Updates

Apple $AAPL ( ▲ 1.29% ) continues fighting to delay an App Store ruling, telling the 9th Circuit Court it would face “irreparable harm” from a 27% fee ban and limitations on controlling in-app links.

Shopify $SHOP ( ▼ 0.82% ) reported Q1 revenue of $2.36 billion, exceeding estimates. The company expects mid-20s revenue growth in Q2 and has achieved seven consecutive quarters of GMV growth above 20%.

Disney $DIS ( ▲ 3.57% ) announced plans for a new theme park in Abu Dhabi following strong quarterly results. Industry executives at the Milken Institute Global Conference suggested incentives rather than tariffs would boost film production in the U.S.

Other Notable Company News

Gilead Sciences $GILD ( ▼ 0.79% ) will invest $11 billion in U.S. research and manufacturing operations, joining other drugmakers making domestic investment pledges amid tariff pressures.

Ford $F ( ▲ 0.34% ) increased prices on 2025 models of the Maverick, Bronco Sport, and Mach-E built after May 2, with sticker prices climbing between $600 and $2,000 per vehicle as automakers adjust to tariff uncertainty.

UPS $UPS ( ▲ 2.98% ) maintains its plan to cut over half its Amazon delivery business by mid-2026 despite tariff uncertainty, focusing on more profitable shipments to improve margins.

Zillow $Z ( ▲ 0.53% ) reported its first profit since Q2 2022, posting $8 million in Q1 versus a $23 million loss a year ago. Revenue reached $598 million, topping estimates.

Sector Watch

Bond Market

The 10-year Treasury yield stands at 4.373%, with mixed signals about future rate movements. Powell's comments highlighted concerns about balancing competing risks:

• Traders expect three Fed rate cuts this year with a 36% chance of a full percentage point reduction

• Powell acknowledged a potential "difficult balancing judgment" between unemployment and inflation

• Q1 data showed labor costs jumped 5.7%, adding to inflation pressures

Policy Watch

The Fed's cautious stance dominated policy discussions today, with several key developments affecting markets across sectors.

• Powell stated risks to growth "haven't materialized yet" and "we can afford to be patient"

• Commerce Department will replace restrictions on AI chip exports to several countries

• EU officials proposed tariffs on €95 billion of U.S. goods if trade negotiations fail

Biopharma stocks faced additional pressure on reports Trump may revive the "most favored nation" drug pricing plan that would cap U.S. prices at levels paid by other developed countries.

What to Watch

1. Weekend U.S.-China Trade Talks: Initial meeting in Switzerland between Treasury Secretary Bessent and Chinese counterparts.

   • Could pave way for broader trade discussions

   • China demanding revocation of unilateral tariffs

   • Trump maintains stance on 145% Chinese tariffs
     

2. Additional Trade Deal Announcements: Trump called the UK framework “the first of many.”

   • Watch for hints about which countries might follow

   • Implementation timeline details for UK agreement

   • Potential industry-specific carve-outs in future deals
     

3. Fed Response to Economic Data: Next week’s inflation numbers will shape rate cut expectations.

   • April CPI release will test Powell’s “patience” stance

   • Potential shift in Fed officials’ public commentary

   • Bond market reaction to stagflation concerns
     

4. Geopolitical Tensions: Escalating India-Pakistan conflict adds market uncertainty.

   • Pakistan claims it shot down 5 Indian planes and captured soldiers

   • Pakistan “prepared for an all out war” with India

   • Potential impact on regional markets and supply chains

   
   
   Thanks for reading 🙂
   
   - John
   

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