1. The most important economic data from last week:
1) Although GDP experienced negative growth in the first quarter, excluding the factors of import grabbing, the results indicate that U.S. consumer growth is not weak, dispelling market fears of a recession.
2) The non-farm payroll data in April is similar; the new jobs added exceeded expectations, and aside from the increase in transport and logistics personnel due to tariff grabbing, the new employment was also above expectations.
3) More importantly, last week marked the earnings season for several major tech companies, particularly Microsoft's, Meta's, and Google's strong earnings reports. The growth rate of capital expenditure is still being maintained, alleviating market concerns about weakening earnings. At least in the short term, this has refuted recession worries, although we cannot say we are completely at ease. After all, April is just the first month with a 10% baseline tax rate and tariffs on some industries coming into effect, and we need to observe the subsequent impacts over time.
The most important event this week is still the Federal Reserve's rate-setting meeting, which will only involve the interest rate decision and a press conference.
The Federal Reserve basically remained inactive in May, and last week's good economic data provides even more reason to continue taking a wait-and-see approach. The statements are likely to be neutral to slightly hawkish, which is normal.
We've talked about this before; the main reason for the market's major adjustment is policy shock. Trump's actions didn't affect Powell, and now that Trump has acted, Powell will almost certainly not lower interest rates in the short term. This has no significant impact because it has long been anticipated. However, how the Federal Reserve communicates will be crucial information that influences market expectations.
Currently, market expectations for interest rate cuts are gradually declining. When the trade war first started, the market expected economic pressure and anticipated the Federal Reserve would cut rates four times, with a 100% probability of a cut in June. After a month, the probability of a June cut has continually decreased, and it may have to wait until July for a rate cut. This has also created downward pressure on the rebound of Bitcoin, and the market will remain cautious before the rate-setting meeting (recently, Bitcoin is expected to underperform U.S. stocks). Whether Powell's specific statement is neutral or slightly hawkish will be important; if it is hawkish, how hawkish will it be?
2) Equally important is the tariff negotiations. This week, we will see Canada's Prime Minister visiting the U.S. to meet with Trump, and we will see if Carney continues to maintain a tough stance after the election. Additionally, today, the Australian Prime Minister spoke with Trump, indicating that Australia is entering into tariff negotiations with the U.S.
It has been exactly one month since April 2nd, and as of now, the U.S. has not signed any trade agreements. If this drags on, the difficulty of the market fulfilling expectations will increase, leading to a risk of giving back gains. A one-month agreement, a two-month agreement, or a three-month agreement will have different impacts on the market. Currently, the market's movement is almost fully priced in for 'reaching the first trade agreement' and 'U.S.-China negotiations starting,' but obviously, substantial good news has not yet been seen.
If subsequent bad news that does not meet market expectations emerges, a market correction would be reasonable. At this stage, we should maintain expectations of medium-term oscillation and not have excessive expectations regarding the timing and magnitude of market rebounds. Not having expectations makes it less likely to get overly invested; a slight increase in risk aversion might trigger FOMO. Not having expectations also means that if good anticipations are crushed by reality, one will not be greatly disappointed, losing the motivation to persist and hope for the future.
The autumn of many affairs is largely a test of investment sentiment; last year's March to September was like this, and so far this year has remained the same. Only by enduring bad times can one wait for good times.
