Market Insights Recap — Week of May 5, 2025

Hello, I'm Steve Orr, Chief Investment Officer for Texas Capital's Private Bank.

Well, April is in the books, and out there in the markets, it's nevermind time. Or perhaps it's rewind time, and finally, folks are going back to work. So what does this mean for our portfolios? And what should we be thinking about? Friday, 21st trading day since Lutnick handed President Trump the terror tariff poster on Liberation Day. Well, from April 22 through Friday, the S&P 500 rallied nine straight days, climbing just over 10%. After Friday's close, markets are now back to April 2 levels. The tech-heavy Nasdaq is even up about 2%. It's as if April did not exist for the big indexes. So how about those 1,000 point down days for Dow industrials in April? The back-to-back 5% drops in the Nasdaq? After the S&P 500 dropped 12% in the first four days after Liberation Day, are we just supposed to say nevermind? As my man Lee Corso says, not so fast, my friend. 

Just because we have rallied back to Liberation Day levels does not mean the correction war is over. We added some significant battle scars to our ledger, enduring some of the fastest and steepest declines in history. A large chunk of the 10% to 18% drops in various sectors of the market were the unknowns presented by Trump's new tariffs. Some of the damage, especially in the bond markets, was caused by fast money getting margin calls and having to sell anything to raise money. You may recall last week, we covered the collateral damage over in the municipal bond market that has given our clients some very nice value in the last few weeks. Please understand we're not out of the woods yet. History does rhyme, and our charts remind us of a number of other event-inspired corrections. 

Remember, tariff trauma is an outside event. It's going to eventually impact earnings. Over the last couple of weeks, though, the potential damage to stocks and bond earnings has come down a bit. Panic selling early on squashed sentiment. And we saw surges in large numbers of stocks making new one-year lows. And when sentiment falls to extremes, there's usually some kind of bounce. And a 10% run is fairly typical. But what's not typical is nine straight up days, every day. Very rare. First one since 2004. We cautioned our clients to hold fire and not buy the dip. Now we caution clients against buying the rip. Stay patient. Enjoy that 4% in your cash, if you don't have to put money to work. Now, other than Trump caving five times on exemptions and tariff cuts, the underlying fundamentals really haven't changed. April's job reports better than expected. Unemployment rate held steady at 4.2%. More workers entered the labor force, and those numbers were tallied starting the week of April 12 in the early stages of tariff trauma. Now, April did mark the second month in a row that the labor force participation went up. 

So, despite low market sentiment and tariff worries, businesses are hiring. Other positive developments to watch: Congress moving along on budget reconciliation. There's a possibility, slim but possible, that the budget and tax bill could be done by July 4. We remain optimistic that several trade deals could come together by Labor Day. Speaking of holidays, this is Mother's Day week, and it's also Fed Week. The Fed will not give markets much to cheer about as they telegraphed no change in short-term rates. Chairman Powell's press conference Wednesday afternoon usually does move markets back and forth a bit. 

Wrapping it up: The big stock indices are back up to March levels. Long-term interest rates, slightly higher than March. Dollar stabilized some 5% lower, offsetting some of the tariff impact to come. Our base case: bumpy ride the next several months. No recession. But first gear for the economy. Let us know how we can help you; 'til next time.