Tariff Fears Dissipate

1. Tariff Clarity. U.S. Treasury Secretary Scott Bessent met with the Chinese lead economic representative and Vice Premier, He Lifeng, in Switzerland on Saturday. The two sides agreed to temporarily suspend most tariffs on each other’s goods for 90 days; both countries cut their respective tariff rates by 115%, now at 30% for Chinese imports and 10% for U.S. imports. Bessent stated that the discussions were productive and that he would like to see China open to more U.S. goods. Trade talks will continue over the coming weeks with the hope that a more substantive deal will be signed. For now, the 90-day pause brings much clarity to markets regarding the U.S./China tensions. The trade deal is likely to open talks with more countries and bring more deals to the table. S&P 500 futures rose over 2%, and bond yields moved higher on the announcement.

The S&P 500 was mostly unchanged last week, declining ~30 basis points (bps). But since the April 8^th low, the S&P 500 has gained over 15% and is now above pre-Liberation day levels. We received the first confirmed trade deal last week, the U.S. and UK agreed to trade agreements that will be written up and finalized in the coming weeks. Preliminary information indicates that the trade deal increases U.S. access to markets for selling beef and ethanol fuel. The deal is expected to lower average British tariffs on U.S. goods to 1.8% from 5.1% and keep in place a 10% tariff on British goods. Discussions with India and Australia are also in the works, as well as with Japan.

Back in February, we held a cash position of 9%. But, on the weakness, we added to our favorite positions because valuations became much more attractive, and sentiment was incredibly negative. Extremes often provide opportunities on the long and short side. We now hold 2% cash.

Chart 1: Chinese Exports to the U.S. in April Decline^[1]

2. Fed Keeps Comments Quiet. During last week’s May Federal Open Market Committee (FOMC) meeting, the Fed kept its policy rate steady at 4.25%-4.50-%. Fed Chair Jerome Powell maintained similar sentiment and did not instill any new fears into investors’ minds. Markets expected this continued pause and still expect it at the next FOMC meeting in June, where there is an 82% chance for a rate pause once again. Powell noted that uncertainty about the economic outlook has increased further, and the possibility of higher inflation and higher unemployment has risen. The Committee is awaiting more data and believes that any price increase from tariffs may be a one-time event, stating that the “swings in net exports have affected the data”. The Fed plans to wait to see how things evolve and believes its policy is in a comfortable place.

3. Fixed Income. U.S. Treasury yields fluctuated throughout the week due to a series of key events and data releases, including the ISM Services PMI, trade deals, and a modestly hawkish stance from the Fed. The Fed held its policy rate at 4.25%-4.50% at Wednesday’s FOMC meeting, and Powell’s uncertainty was captured when he stated, “It’s really not clear what it is we should do… I don’t think we can say which way this will shake out”. In summary, the 2-, 10-, & 30-year yields were higher by 7, 7, & 5 bps, respectively.

Since April 9th, when President Trump introduced a 90-day pause on tariff implementation, both investment-grade and high-yield spreads have tightened. Investment-grade spreads have tightened 40 bps to +142 bps, and high-yield spreads have narrowed by 131 bps to +395 bps. As a result, current spreads remain just 10 and 2 bps wider in investment-grade and high-yield compared spreads, respectively, to levels observed on Liberation Day. In terms of credit quality, the main rating agencies released 44 downgrades and 18 upgrades last week. This year, the rating agencies have downgraded ratings 587 times and upgraded them 512 times.

Tax-exempt yields were lower by 1-2 bps across the curve. Approximately $13 billion of tax-exempt issuance is expected this upcoming week as demand continues to increase during the annual summer reinvestment period.

4. The Week Ahead.

Economics – Tuesday: CPI, Hourly Earnings; Thursday: Initial Claims, Continuing Jobless Claims, PPI, Retail Sales, Business Inventories; Friday: Building Permits, Export Price, Housing Completions, Housing Starts, Import Prices, Michigan Sentiment.

Earnings – Monday: DVA, FOX, NRG, SPG; Wednesday: CSCO; Thursday: AMAT, DE, STE, TTWO, WMT.

Stephanie Link’s TV Schedule:

Return for Selected Indices^[2]

Sources:

^[1] Source: Bloomberg. As of May 9, 2025.

^[2] Source: Bloomberg. As of May 12, 2025.

Disclosure

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, as a member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.