Week in Review: May 16, 2025

May 19, 2025

Recap & Commentary

Markets ended the week higher following an agreement between China and the US to suspend most of tariffs between the two countries for 90 days. The deal, announced on Monday, provided a further boost to sentiment which continued throughout the week, ending with the S&P 500 up 1.3% for the year, having fully recovered all of its post-April 2 tariff announcement losses.

Though the pause does not fully eliminate tariffs between the two countries, it reduces tariffs on Chinese goods entering the US from 145% to 30% while reducing tariffs on US goods entering China from 125% to 10%. Further talks are expected in the coming weeks. Despite the significant reduction in tariffs, they remain significantly elevated compared to their pre-April 2 levels, with the potential to put upward pressure on inflation.

That was reinforced on Thursday during Walmart’s earnings call when CEO Doug McMillon said that even at reduced levels, “tariffs will result in higher prices.” On the same call, the company’s CFO said, “there’s a limit to what we can bear, or any retailer for that matter.” In response, President Trump said Walmart should “eat the tariffs” and not raise prices.

Separately, Fed Chair Jay Powell said at a conference “We may be entering a period of more frequent, and potentially more persistent, supply shocks- a difficult challenge for the economy and for central banks.” The message, from both Walmart and the Fed suggest that while the effects of tariffs have yet to be reflected in official inflation data, it is likely just a matter of time.

Economic Commentary

Despite growing concerns about the potential inflationary impact of tariffs April’s inflation data appeared unaffected. Compared to March, headline consumer inflation (CPI) rose just 0.2%, below economists’ 0.3% forecast. And compared to a year ago, headline inflation rose just 2.3%, its slowest pace since February 2021. Core CPI, excluding food and energy prices, also surprised to the downside, rising just 0.2% vs. an expected 0.3% increase. Compared to a year ago, core CPI rose 2.8%, unchanged from March’s pace.

Producer prices, also failed to show any upward pressure from tariffs with headline PPI falling 0.5% in April, the largest monthly decline since April 2020. Compared to a year ago, headline PPI slowed to 2.4%, its slowest pace since September. Core PPI, exhibited similar slowing trends as headline PPI.

Consumer sentiment fell to its second lowest reading on record since 1978 as tariff concerns clouded consumers’ views of both current and future economic conditions. Historically, consumer sentiment was viewed as an indicator of future consumer spending, though that relationship has weakened in recent years as evidenced by relatively strong post-COVID consumer spending despite depressed sentiment readings. That was true again in April as retail sales rose, albeit a modest 0.1%, despite the woeful sentiment. Reflecting consumers’ concerns about the potential inflationary impact of tariffs, 1yr inflation expectations jumped 0.8% from April to 7.3%, the highest level since 1981. Five-year expectations rose 0.2% to 4.6%, the highest level since 1991.

Of Note

Moody’s became the last of the three major credit ratings agencies to downgrade its AAA US credit rating, citing growing debt levels over the past decade and the likelihood of continued significant deficit spending in the years ahead.

Market Indices   (As of 05/16/2025)

• Manufacturing PMI
• Services PMI
• Existing Home Sales
• New Home Sales
• Initial Jobless Claims