Weekly Market Recap: Markets Pause on Trade Hopes and Fed Patience: Caution Returns After Historic Rally
Market Overview
After two consecutive weeks of gains, U.S. equities took a breather. The S&P 500 fell -0.45%, the NASDAQ -0.26%, and the DJIA -0.14% as investors digested a flurry of trade headlines. Market sentiment remained reactive to U.S.-China developments, including a confirmed meeting between top officials in Switzerland and a framework trade deal between the U.S. and U.K. While these offered some optimism, uncertainty loomed, and markets treaded cautiously ahead of the talks.
Small caps outperformed modestly, with the Russell 2000 edging up +0.14%. Growth underperformed value across large and small caps. International markets were mixed — European equities traded sideways as German markets rose to new highs, while Asia saw gains helped by central bank easing in China and upbeat tech earnings from Taiwan. Emerging markets rose +0.50%, benefiting from renewed risk appetite and softer rhetoric out of Washington.
Bond markets posted mild losses. The 10-year Treasury yield rose to 4.38% as traders scaled back expectations of near-term Fed cuts. Global bonds were down -0.46% on the week, though remain +4.7% YTD. Municipals ticked up +0.11%, breaking a multi-week downtrend.
In commodities, oil rebounded on easing OPEC+ tensions and firmer trade headlines. Gold regained ground late in the week as the dollar weakened, despite an initial dip from risk-on flows. The Bloomberg Commodities Index rose for the first time in three weeks.
Federal Reserve Insights & Economic Roundup
The Fed held rates steady at 4.50%, with Chair Powell maintaining a cautious, data-dependent tone. While inflation remains elevated — Core CPI sits at 2.8% — the slowdown in services employment and mounting geopolitical trade risks have clouded the growth outlook. Unemployment remained at 4.2%, but GDP contracted -0.3% in Q1.
April data painted a mixed picture. The ISM Services Index rose to 51.6, signaling expansion, and new orders continued to grow in several industries. But employment softened for the second month and inflationary pressures persisted — especially in service prices, raising the risk of stagflation.
With the Fed focused on both price stability and full employment, the path forward remains uncertain. Inflation may stay sticky, but weakening labor trends and softening consumer demand suggest rate cuts are still possible later this year.
The Week Ahead
Investors face a busy economic calendar:
Monday: Federal Budget Balance (Apr)
Tuesday: NFIB Small Business Optimism, Headline & Core CPI (Apr)
Wednesday: MBA Mortgage Applications
Thursday: Empire Manufacturing, Retail Sales, PPI, Jobless Claims, Industrial Production, Business Inventories, Housing Market Index
Friday: Housing Starts, Building Permits, Import/Export Prices, University of Michigan Consumer Sentiment, TIC Flows
Markets will be looking for clarity on inflation trends and confirmation of any cooling in labor markets, which could shape expectations for future Fed action.