Schwab Market Update

Published as of: May 30, 2025, 9:16 a.m. ET

(Friday market open) Despite heightened trade uncertainty and a setback overnight, stocks are on pace for a strong May as investors mull the latest inflation data. Weakness early today centered on trade, with stocks losing ground after Treasury Secretary Scott Bessent told Fox News that trade talks with China are "a bit stalled" and President Trump posted that China has been violating a preliminary trade deal. 

Today's April Personal Consumption Expenditures (PCE) price index showed more progress on inflation. Both headline and core PCE (core excludes volatile energy and food prices) rose 0.1%, as analysts had expected, while annual headline inflation rose 2.1%. Separately, April personal spending rose 0.2% despite a 0.8% rise in personal income. "Personal income was the big surprise, rising 0.8% versus an expectation of 0.3%," said Cooper Howard, director, fixed income strategy at the Schwab Center for Financial Research "It could be due to the Social Security catch-up payments, though. Savings rose 0.5%, which could mean that individuals are preparing for a slowdown in the economy. This doesn't change the outlook for the Fed. We're still looking for one to two cuts this year depending on how the economy develops." 

Investors are still catching their breath after yesterday's whipsaw legal action as one court briefly stuck down tariffs before an appeals court reinstated them. The case may ultimately reach the Supreme Court. "Trade negotiations likely will become more difficult and there may be less urgency for countries to cut deals now, particularly for those with less exposure to targeted sectors," said Schwab's Chief Global Investment Strategist Jeffrey Kleintop and Schwab Center for Financial Research's Director of International Research Michelle Gibley in their analysis. "There may be some relief that tariffs may be reduced in severity or duration, but the next steps are complicated and likely to extend uncertainty for businesses and the economic outlook."

1. Sentiment ahead, followed by Fed speakers: This week's data parade concludes soon after the open with the University of Michigan's final consumer sentiment reading for May. The average analyst estimate of 50.8 is unchanged from the preliminary May reading—one of the lowest in history. However, a brighter consumer confidence number earlier this week could underpin ideas that "soft data" like sentiment might have improved as consumers saw tariff deadlines extended. As always, check the report's inflation expectations, which skyrocketed to 7.3% in the preliminary May report. Federal Reserve Chairman Jerome Powell often stresses the importance of keeping inflation expectations in check. Speaking of which, Powell is scheduled to deliver opening remarks next Monday afternoon at a conference. It's unclear if he'll discuss developments like sentiment and inflation, but a late Sunday speech by Fed Governor Christopher Waller is focused on the economic outlook, so make your weekend plans accordingly.
    
2. Earnings growth expected to slow: First quarter S&P 500 earnings growth was nearly 13%, according to FactSet, in data released before Nvidia (NVDA) and Salesforce (CRM) reported. The strong results from both and their huge market capitalizations could mean an even higher number when FactSet comes out with its next weekly update later today. But analysts expect only 5.1% in the second quarter and 9.1% for the calendar year. Those are historically decent numbers, but not a breakneck pace, and investors should keep these in mind in the context of recent  near-record highs for major indexes. The forward price-to-earnings multiple for the S&P 500^® index (SPX) climbed back above 21 recently from lows near 18 back in April. The 10-year average is around 18. A high P/E generally means investors expect solid earnings growth, but whenever stocks rise and earnings expectations fall, the P/E climbs into thinner air. Bulls may be hoping for a repeat of the first quarter, when initial analyst expectations for 7% earnings growth proved far too small. But first quarter results likely reflected pre-tariff buying and inventory building, which aren't likely to happen in coming quarters. In a related concern, first quarter gross domestic product (GDP) data showed corporate profits declining by the largest amount since the fourth quarter of 2020. "Corporate profits are still elevated, but the decline is a bit concerning," Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research, said.
    
3. Market momentum starting to wane? Though Wednesday evening's court ruling that briefly struck down tariffs and Nvidia's well-received earnings provided an initial boost Thursday, the momentum didn't really carry through on Wall Street. That doesn't necessarily mean the rally is over, but a couple of technical trends point toward possible speed bumps. First, a key indicator of market breadth—the percentage of S&P 500 stocks trading above their 50-day moving averages—topped out around May 20. The peak was 80% back then, but it's fallen to around 65% by late this week. Breadth provides important insight into market participation, with higher readings suggesting a healthier market where a rising tide is helping most boats. Separately, an important momentum indicator, the Relative Strength Index (RSI), fell to 56 for the SPX yesterday, well below levels near 70 around the same time breadth peaked. When the market is pushing upward but RSI is down, it can imply less muscle to claw past upward resistance, and that seemed to happen yesterday when an early rally flagged. Combined, these two data points suggest the SPX may make another test of technical support near its 200-day moving average down around 5,780. A dip to that level late last week found buying support. On the positive side, the SPX has managed to stay above the 200-day so far, and it clawed back from afternoon selling to close above 5,900 yesterday.

Dell (DELL) rose 0.5% in pre-market trading after first quarter earnings per share missed analysts' expectations. Still, that was only part of the story, as the company raised its guidance and cited strong AI demand.

Ulta Beauty (ULTA) climbed 9.3% this morning after the cosmetic company surpassed Wall Street's expectations for quarterly earnings, becoming the latest retailer to post a strong quarter as consumers seemed to remain in a spending mood despite recent soft sentiment data.

Marvell Technology (MRVL) sank 4% ahead of the open despite meeting analysts' earnings expectations. Guidance also met Wall Street's thinking. However, judging from the stock's performance, investors may have expected even better results and guidance from the chip designer.

UiPath (PATH) soared 12.7% after quarterly results from the software firm exceeded Wall Street's expectations and the firm raised its guidance. 

Gap (GAP) fell 13.5% after the company said its financial outlook will be negatively impacted by tariffs. The retailer, which owns Gap, Old Navy, and Banana Republic, did beat analysts' quarterly earnings and revenue estimates, and its outlook generally met consensus.

Regeneron Pharmaceuticals (REGN) fell nearly 11% ahead of the open as investors reacted to mixed clinical trial data for a drug designed to treat a lung condition.

Bitcoin (/BTC) was steady and other cryptocurrencies slipped this morning, but it was a strong May for crypto; bitcoin hit all-time highs above $112,000 at one point and is on pace for about 11% gains this month.

The SPX headed into Friday up more than 6% so far in May, while the Nasdaq Composite ($COMP) is up more than 10% this month. On a less cheery note, the 10-year Treasury yield is up around 23 basis points from April 30, though it fell this morning. For the SPX, this looks likely to be the first positive month since January.

As of early Friday, futures trading indicated just a 2% chance of a Fed rate cut in June, and 24% in July, according to the CME FedWatch Tool. The market builds in roughly two rate cuts in 2025, with about 75% odds of the first occurring at the Fed's September meeting.

Data, Market Check-In: In the latest Schwab On Investing podcast, Chief Investment Strategist Liz Ann Sonders and Chief Fixed Income Strategist Kathy Jones examine why hard and soft economic data diverged and discuss recent market action. "I think we are still at the mercy of policy announcements, and not just on trade—that's sort of paramount—but especially these days on the budget," Sonders said.

One way to monitor the short-term health of the market is to track the percentage of stocks in the S&P 500 index trading at or above their 50-day moving averages ($SPXA50R-candlesticks). It bottomed at around 10% in early April as tariff worries tore through trading, popped all the way to 80% earlier this month, then dropped to just below 67% yesterday. This drop in breadth, which was accompanied by a slide in the momentum-tracking Relative Strength Index (RSI) for the S&P 500, appears to signal a downward momentum shift.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

June 2: May ISM Manufacturing PMI®, April construction spending, and expected earnings from The Campbell's Company (CPB).
June 3: April factory orders, April Job Openings and Labor Turnover Survey (JOLTS), and expected earnings from Dollar General (DG), CrowdStrike (CRWD), and Hewlett Packard Enterprise (HPE).
June 4: May ISM Services PMI® and expected earnings from Dollar Tree (DLTR).
June 5: ECB rate decision and expected earnings from Broadcom (AVGO), Ciena (CIEN), lululemon (LULU), and Petco (WOOF).
June 6: May Nonfarm payrolls.