Sentiment Shift

1. Taking Pulse of the Market. Markets have rebounded from some of the worst sentiment levels we have seen since 2022. The S&P 500 rose 3% last week on the back of better-than-expected economic data and is now up ~14% from the April 8^th lows. We received the first look at Q1 GDP with a headline figure of -0.3% growth, worse than the expected -0.2% growth. In our opinion, this report was much better than what the headline showed and was quite good. Net exports subtracted nearly five percentage points from GDP in Q1, which was the largest drag in history. Business equipment investment rose 22% and consumer activity rose 1.8% (beating estimates), both of which tell a different story than the headline number. Additionally, final sales to domestic purchasers, which strip out inventory and trade data to get a better look at true economic activity, grew 3%. The economy is not growing at the +3% rate it did in 2023 and 2024, but it is also definitely not growing at the -2% rate implied by many GDP models.

Friday’s labor market data also provided a good update on the economy. The labor market remains robust, with 177K new jobs being added to the economy in April. The unemployment rate is tame at 4.2%, initial jobless claims are rangebound, and average hourly earnings are still growing 3.8% y/y, puts the U.S consumer in a solid position. Not to mention, we are 70% through first quarter earnings season, and earnings are growing 13% y/y – well above the pre-Q1 consensus of 7.2%. Tariff uncertainty remains (although headline volatility has declined), but there is a lot to be positive about in the markets.

Chart 1: Although Still Negative, the S&P 500 has Regained all of “Liberation Day” Losses^[1]

2. A New Era. Each year at Berkshire Hathaway’s (BRK.B) annual shareholder meeting, the greatest investor of all time shares his opinion on the market and economy, but this year was extra special. Warren Buffett announced that the board of directors will be taking a vote to approve Greg Abel as the new CEO of BRK.B, starting January 1, 2026, which was approved on Sunday. Abel was designated as CEO successor in 2021, and come next year, Buffett plans to remain close to the company.

Since Buffett took over the role as CEO for BRK.B in 1965, the company’s shares have gained nearly 20% per year through the end of 2024, and over 5,500,000% in total. Abel’s new role will be setting the direction and decision making for the $1.2 trillion company, along with record-high levels of cash, over $300 billion.

Chart 2: Abel Will Have Plenty of Capital to Deploy in Years to Come^[2]

3. Fixed Income. U.S. Treasury yields initially rallied at the beginning of the week on bearish economic data before retracing higher after a better-than-expected ISM Manufacturing and nonfarm payrolls data. The 2-, 10-, & 30-year yields were higher by 8, 7, & 9 bps, respectively. Market participants retracted their forecasted number of cuts this year from four to three and largely expect the Fed to hold interest rates steady at this Wednesday’s FOMC meeting.

Following the announcement of reciprocal tariffs on April 2nd, investment-grade credit spreads widened by 50 bps, while high-yield spreads widened by 140 bps. Since April 9th, when President Trump introduced a 90-day pause on tariff implementation, investment-grade spreads have tightened by 32 bps to +142 bps, and high-yield spreads have narrowed by 117 bps to +405 bps. As a result, current spreads remain just 10 bps wider in investment-grade and 22 bps wider in high-yield compared to levels observed on pre-Liberation Day.

Tax-exempt yields were lower by 4-11 bps across the curve last week. Municipal investors will be receiving $68 billion of principal and interest over the next 35 days, more than they received in March and April combined. Muni-to-Treasury ratios remain at their highest level since 2022 ahead of this increased demand.

4. The Week Ahead.

Economics – Monday: ISM Services; Wednesday: FOMC Meeting.

Earnings – Monday: CLX, CMI, F, HSIC, O, ON, PLTR, TSN, VRTX, ZBH; Tuesday: ADM, AEP, AMD, ANET, BALL, CEG, CPAY, CTRA, DUK, EA, FANG, FIS, GEN, GPN, IQV, IT, J, LDOS, MAR, MPC, PGR, SMCI, TDG, WAT, WEC, WMB, WYNN, ZTS; Wednesday: AIZ, AXON, BG, CDW, COR, CRL, DASH, DAY, DIS, DVN, EMR, FTNT, IFF, JCI, JKHY, MKTX, MOS, NI, PAYC, ROK, SWKS, TECH, TRMB, UBER, VRSK, VST; Thursday: AKAM, APA, ATO, CF, COP, CTVA, EPAM, EVRG, EXPE, FRT, KVUE, MCHP, MCK, MTCH, NWSA, OXY, PARA, PODD, SOLV, SRE, TAP, TKO, TPL, TPR, VTRS; Friday: LNT.

Stephanie Link’s TV Schedule:

Return for Selected Indices^[3]

Sources:

^[1] Source: FactSet. As of May 2, 2025.

^[2] Source: Bloomberg. As of May 4, 2025.

^[3] Source: Bloomberg. As of May 5, 2025.

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