Market Minute
Weekly analysis from the FS Investments Research team
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May 12, 2025
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Equities
The S&P 500 edged lower last week, as hopes around trade negotiations clashed with a more hawkish Fed. Markets reacted positively to the Trump administration’s apparent openness to talks with China and to an announced trade deal with the U.K.. U.S. large caps again handily beat earnings expectations in Q1, growing EPS 13% y/y, but many firms pulled guidance amid tariff-related uncertainty. Despite volatility YTD, the S&P 500 P/E ratio has risen back toward 21x, barely lower relative to the start of the year. Foreign markets were similarly mixed as investors await more clarity on bilateral trade negotiations.
Fixed income
Interest rates ticked higher as the Fed ruled out preemptive rate cuts and the U.S. administration announced its first trade deal. The FOMC signaled uncertainty as it held rates steady, and potential challenges to both sides of its mandate would likely keep policy unchanged until economic data shifts. The market now prices fewer than three rate cuts in 2025, followed by two in 2026. The 10-year Treasury yield ended the week at 4.38% as markets have reduced recession probability somewhat. Credit markets gained modestly as spreads continue to retrace their April widening.
Commodities
Crude prices recovered last week, rising above $60/bbl on trade deal hopes and an expectation lower prices would lead to lower production. U.S. rig counts declined again last week as U.S. producers deal with prices near their breakeven. OPEC+ appears resolute in plans to increase production this year, capping oil upside. Gold prices rose slightly in a volatile week as traders continued to use it as a proxy for trade war sentiment.
Economic overview
Economic data are softening but have yet to show signs of a recession. The ISM Services Index beat estimates, as the report gave promising signs for growth and employment but also signaled higher input costs. Initial jobless claims, after rising last week, fell to a healthy level of 228k. Higher continuing claims suggest that while layoffs remain rare, finding a new job has become challenging. Cargo ship departures from China to the U.S. are down roughly -20% y/y and likely to fall further unless tariff policy is relaxed.
Source: Bloomberg, as of May 8, 2025.