Weekly Market Update: May 19, 2025

The United States and China have agreed to pause most of the tariffs between the two nations. They will attempt to renegotiate a comprehensive trade deal. Specifically, the 90-day moratorium will drop American tariffs on Chinese goods from 145% to 30%, while China has agreed to slash retaliatory duties from 125% to 10%. It was a positive development in the ongoing trade war, which has functionally been equivalent to an embargo, with few shipments moving between the two nations. This rate reduction will increase trading activity, and President Trump added that the pause on most levies could be extended, assuming “good faith” negotiations to finalize a deal continue. 

The increased trading activity between the world’s two largest economies lessens the odds of a recession on these shores. There also is renewed hope that inflation will remain on a downward, albeit uneven, trajectory if consumers are not forced to pay higher prices for goods this spring and summer, resulting from fewer foreign-produced options. Inflation at the consumer and producer (wholesale) levels may also be helped by deregulation in the energy markets—and the possibility of lower prices for oil and natural gas—during the second half of this year. 

The April Consumer Price Index (CPI) report was encouraging. The CPI and the core CPI, which excludes food and energy, increased 0.2%, month to month, with both coming in lighter than expected. On a one-year basis, the CPI rose 2.3%, with the pace of growth moderating from the 2.4% increase recorded in March. All in all, it was a constructive report for the Federal Reserve in its goal to rein in inflation. 

First-quarter earnings season was a success for Corporate America. With nearly all of the S&P 500 companies having reported as of press time, more than three-fourths beat profit expectations. Profit growth, on average, was around 14%, which would mark the second-consecutive quarter of double digit advances. 

Conclusion: Some positive trade developments and a surprisingly strong first-quarter earnings performance helped the major averages retrace the early April tariff-driven setbacks. That said, given the fluid nature of global trade negotiations, we continue to recommend that investors maintain a diversified portfolio led by stocks of high-quality companies. 

Source: ValueLine.com