I. Performance and Valuation of Global Equity Indices
Data Sources: Bloomberg, Tiger Asset Management
◼ Last week, U.S. equities continued to fluctuate at high levels. Although there were several unexpected shocks, V-shaped intraday reversals occurred each time. The S&P 500$, Nasdaq$, and Russell$ led global equity markets. In contrast, Greater China equities underperformed, with the Hang Seng Index$, CSI$, and Hang Seng Tech Index$ all recording declines of over 1%.
◼ Last week, U.S. macro data was generally solid. GDP and PCE came in without negative surprises, and the University of Michigan consumer sentiment survey even unexpectedly improved. However, Trump’s tariff policies fell into a stalemate as the U.S. Court of International Trade ruled that his tariffs were invalid. Although this did not ultimately change his tariff policy, it exposed internal conflicts within the U.S. and provided leverage for negotiations by other parties. With only one month left in the 90-day grace period, no progress has been made in the talks, and there is a possibility that Trump may apply maximum pressure again. In our view, the current market is very strong, with bad news quickly absorbed. The short-term turning point still depends on inflation data, with a major test coming in mid-June.
◼ This week, the market will focus on macro data such as May’s non-farm payrolls and unemployment rate, as well as any progress in tariff negotiations.
II. Key Market Themes
U.S. Stocks: Stay Optimistic, Stay Cautious
Over the past week, U.S. capital markets continued to swing with slightly increased volatility. On the macro front, the second estimate of Q1 GDP was released. It declined by 0.2% quarter-over-quarter, which was slightly better than the initial estimate of -0.3%. There were two major revisions in the components: personal consumption contribution was revised down from 1.2% to 0.8%, indicating significant weakening in both goods and services consumption; private sector investment contribution was revised up from 3.6% to 3.98%, almost fully offsetting the decline in consumption. Net exports were slightly revised downward, while government spending was slightly revised upward. Overall, GDP is a lagging indicator, and Q1 data still reflects pre-tariff conditions, thus having limited impact on current market sentiment.
A few days later, April's PCE inflation data was released. Core PCE rose 0.1% month-over-month, seemingly in line with market expectations. However, the March data was revised up by 0.1%, which means April's inflation should have been 0.2% above expectations. Still, the market seemed unconcerned at this point. An interesting figure was that personal income rose 0.8% MoM, far exceeding the expected 0.3%, while personal spending rose only 0.2%, in line with forecasts. This suggests that American incomes have not been significantly impacted in April, but consumption behavior has become more cautious due to the external environment, showing the resilience of the U.S. economy.
Meanwhile, the University of Michigan consumer survey — which the Fed considers soft data — has started to improve across the board. Consumer confidence rebounded beyond expectations, and the 5-year inflation expectation fell to 4.2%, below both the forecast and the previous reading. At present, everything remains in line with Powell's expectations. According to Goldman Sachs estimates, over the next 3-6 months, hard data may weaken while soft data improves, eventually converging at around 1% real GDP growth. Last week, Trump also met Powell at the White House and continued pressuring him to cut rates quickly, but the Fed reiterated its data-dependent stance. We believe the Fed's independence is not yet in danger, and instead of confronting the Fed head-on, Trump may focus on the upcoming elections. Thus, the market remains largely indifferent.
Compared to macro factors, the tariff issue saw even more twists last week. The U.S. Court of International Trade ruled that the Trump administration had exceeded its legal authority in implementing tariffs, particularly in its use of the International Emergency Economic Powers Act. On the same day, the Trump administration immediately appealed, and the Federal Circuit Court ordered a stay of execution. After this series of legal maneuvers, Trump's tariff policies remain effective, but the incident revealed significant domestic opposition within the U.S. to forcibly pushing through tariffs. As a result, negotiating countries, including the EU, Japan, and Vietnam, have adjusted their negotiation strategies with increased confidence.
Moreover, on Friday, Trump unexpectedly announced an increase in steel and aluminum import tariffs from 25% to 50%, sparking global discontent. The EU responded directly, stating that it would take countermeasures. In addition, Bessent publicly admitted that U.S.-China negotiations had reached an impasse and would require direct talks between the two countries' leaders to move forward. In our view, with less than one month remaining in the 90-day grace period, Trump's "divide-and-conquer" trade negotiation strategy has clearly stalled. Over the remaining weeks, Trump may resort again to maximum pressure tactics to force quick agreements.
However, the market seems to have its own interpretation. Recently, a popular Wall Street trading strategy called TACO (Trump Always Chickens Out) has emerged, referring to Trump's pattern of making aggressive threats in major trade or fiscal negotiations but failing to follow through. Wall Street believes the market has recognized the White House's low tolerance for economic pressure, and even if Trump applies maximum pressure again, markets expect him to ultimately back down.
Recent market behavior has indeed reflected this: despite stalled tariff negotiations, Trump’s repeated tough talk, and occasional macro data surprises, the market continues to rebound quickly after sharp drops. On the policy front, fiscal tightening appears unlikely — even Musk expressed frustration — and monetary easing is seen as just a matter of time. The market no longer believes Trump will escalate tariffs further. However, funding pressures remain; Goldman Sachs expects CTAs to turn net sellers this week, and corporate buyback windows will close by mid-June. In our view, the short-term turning point for the market will depend on post-tariff inflation and employment data, with a major test arriving in mid-June. If data shows that tariff impacts are minimal, the market narrative may return to last year's tone. For now: stay cautious, stay optimistic.
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