A busy week ahead for earnings and corporates to test last weeks rally.

It was a much better week for equity markets, with the S&P 500 gaining just over 5% in the past week and almost 10% from its lows a few weeks ago. The more economically sensitive Russell 2000 index also had a good week, but remains significantly lower than where it started the year. Trump rowed back on his threat to remove Powell, and there appeared to be some walking back on tariff wars by both America and China. Trump stated that tariffs on Chinese imports should decrease from the current 145% level. The St Louis Fed policy uncertainty index, which spiked at the start of the month, has been steadily falling since mid-April.

The past week’s events remind us, as is the case with most politicians, that Trump has a point of maximum pain when he blinks and steps back from the abyss; the power of the markets usually prevails. Earnings season is also supporting equity markets, with just over one-third of the companies in the S&P 500 having reported earnings for Q1 2025. According to FactSet research, the blended year-over-year earnings growth rate for the S&P 500 is 10.1%, compared to analysts’ forecasts of just over 7% at the start of the quarter reports. As we pointed out on Friday, the macro data remains resilient; the flash PMI continues to indicate US economic expansion. Confidence in the outlook has returned as the Vix index is back to its level before the reciprocal tariffs. However, it’s noteworthy that the US economic surprise index has started to trend lower in the past week or so.

Looking to the week ahead, plenty more household names, including Microsoft, Apple, Coca-Cola, Amazon, and Meta, are reporting earnings. The monthly U.S. employment report, first-quarter U.S. economic growth data, and an inflation update add to the potential market-sensitive events in the coming week. Of all the data points this week, the employment report will probably challenge the markets the most. The US economy is projected to have added 130K jobs in April, down from 228K in March. The unemployment rate is expected to hold steady at 4.2%, while wage growth is expected to be 0.3% month on month. The PCE inflation report is also on the radar, with the Fed’s preferred core measure expected to ease to a four-month low of 0.1% in March from 0.4% previously. A combination of a weak jobs report and further signs of inflationary pressures easing will boost the Fed’s position to cut interest rates in the coming months, as it would suggest further weakness in the US economy. In contrast to the busy US week, the UK calendar is light, with only a few releases scheduled: Nationwide House Price Index and the Bank of England money and credit indicators.

Equity markets are starting the week on a mixed note. The US futures indicate a small decline after last week’s strong rally. A pause for reflection is not unreasonable.