MARKET COMMENTARY

Below are the economic and market highlights for the week: 

1. April’s jobs report defied the odds as businesses added 177K new hires to the payrolls. That was above analysts’ estimates of 133K. The survey of households, which is used to calculate the jobless rate, showed an even stronger gain, with an increase of 436K in those who reported holding jobs. The unemployment rate meanwhile held steady at 4.20%, suggesting a relatively stable jobs market. A broader unemployment gauge that includes discouraged workers and those holding part-time jobs for economic reasons, or the underemployed, edged lower to 7.80%. In a sign of easing wage inflation pressures, average hourly earnings rose just 0.20% on the month. The jobs report was a relief to markets given the concerns that businesses may begin pulling back on hiring due to the overall uncertainty surrounding trade. It is still early, but hiring behavior continues to reflect business’s optimism that trade deals will be resolved sooner versus later.

2. The first estimate of Q1 2025 GDP dropped this week, showing the U.S. economy contracted by 0.30% in the quarter. That marked its first GDP decline in three years. The downturn was driven largely by a surge in imports which are a subtraction in the GDP calculation. Businesses rushed to stockpile goods ahead of the Trump administration’s newly announced tariffs, leading to imports rocketing 41% higher and resulting in a -5% contribution to the overall GDP calculation. Consumer spending, which accounts for about two-thirds of the U.S. economy, slowed to 1.80%, down from 4% in Q4 2024’s holiday infused quarter. Business spending, however, remained strong, increasing by 3%. Clearly there was a lot of noise in the GDP print, but while the headline number may have been initially alarming, the general takeaway of most economists was that underlying business and consumer demand was still intact. That said, this report’s cutoff date was prior to the actual tariff announcements, meaning that next quarter’s report is likely to be just as noisy.

3. American manufacturers slipped further into contraction territory in April as the Trump administration imposed tariffs on imported goods. The ISM Manufacturing Index slipped to a five-month low of 48.7 in April from 49 the previous month. Numbers below 50 indicate contraction while those above signal expansion. New orders and production weakened while prices continued to rise, largely due to tariff-related inflation.

Market Springs to Life After April Tariff Downpour

After weathering a turbulent April marked by tariff uncertainty, markets are springing back to life as we kick off May trading. As of market close on Friday, the S&P 500 posted its ninth consecutive day of gains – its longest daily winning streak in over two decades. Also as of Friday, the S&P 500 and Nasdaq Composite managed to erase all their losses incurred since Trump’s Liberation Day tariff announcement. The two indices have been assisted by strong earnings beats from Magnificent 7 members Microsoft and Meta and hopes for a series of trade deal announcements in the weeks to come. Late on Thursday, news broke that China is warming to trade negotiations with the U.S. While the announcement has little near term significance, the shift in tone from both the U.S. and China was a welcomed sign to investors. On the economic front, Q1’s GDP estimate got clobbered but to the markets’ credit, they were quick to understand that the headline number failed to tell the complete picture since businesses frontloaded imports and grew inventory in response to tariff fears. In fact, if one were to remove net exports (exports less imports), and just concentrate on consumption, investment, and government spending, the Q1 reading would have been closer to 2.1%. Economists expect imports to normalize in the coming quarters and are forecasting Q2 2025 GDP to rebound to 2.00%. With the GDP report being as noisy as it was, the jobs report took on extra meaning this week. Fortunately, the 177K new hires came in above expectations and only slightly missed March’s 185K. Time will tell whether April’s jobs report has provided false confidence, but given the difficulty companies have had in hiring staff in recent years, companies are reluctant to lay off workers when the tariff impact is still unknowable. The administration has been touting that several trade deals are in the works and once announced they could go a long way to rebuilding consumer confidence. In turn, this could lead to a rebound in consumer spending during the busy summer travel season.

Investors have been quick to jump on the possibility that several positive catalysts exist for the market – whether those be trade deals, a rate cut, or just a resilient consumer. As of Friday’s close, the S&P 500 sits about 8% below its all-time highs. That’s a stark turnaround from early last month when the broad market index briefly entered bear market territory, or a decline of more than 20% from its peak. Despite the rebound, individual investors’ sentiment remains extremely pessimistic with only 21.90% of investors expecting the S&P 500 to be higher over the next six months according to the American Association of Individual Investors. Fortunately, investor sentiment has historically been a contrarian signal. In the past when investors reached this level of negativity, markets delivered a higher-than-average return over the following six months (8.70% vs. the average market return of 5.80%) as well as over the following 12 months (16.80% vs. 11.90% on average). This is not to say that blue skies lie ahead, but the raw sensitivity to the tariff announcements appears to have now scabbed over and whereas only downside risk was being priced in April, markets have entered May with hopes springing eternal. 

The Week Ahead

Key events and reports include the Fed’s FOMC meeting, U.S. trade deficit, and ISM Services. 

Math and Sports Fans Unite

This past week, a soccer team’s championship win quietly completed a mathematical sequence that has been more than three decades in the making. The English Premier League was formed in 1992 and is the top professional soccer league in England. It consists of 20 teams, including well-known clubs such as Manchester United, Arsenal, and Manchester City.  Every season, each Premier League team plays a total of 38 matches with 19 home games and 19 away games.  This year, something incredible that went unnoticed until now is the remarkable pattern formed when the title-winning clubs are listed by the number of championships they have won, starting from the team with the fewest championship wins to the team with the most title wins in the English Premier League. This appears as: 1, 1, 2, 3, 5, 8, 13. These numbers are not random — they are the celebrated Fibonacci sequence.

The Fibonacci sequence was introduced to the West by Italian mathematician Leonardo of Pisa, also known as Fibonacci, in the 13th century.  Fibonacci is short for “filius Bonacci” which means “son of Bonacci.” His full name was Leonardo Bonacci, and he traveled extensively, particularly throughout the Mediterranean and North Africa, studying different numerical systems and methods of calculation, including number theory, place value, geometry, and algebra.  Fibonacci published a book called Liber Abaci (The Book of Calculation) in 1202, that is widely regarded as one of the most important math publications in history. 

In his book, Fibonacci promoted the Hindu-Arabic numeral system – the one we use today with figures 0 through 9 – to demonstrate how much easier arithmetic can be when using these figures as opposed to Roman numerals and counting on an abacus: techniques that were widely used in Europe at that time.  The book included practical examples such as currency conversions, profit calculations, interest rates, and weights and measures that made math accessible and useful in everyday commerce.  The book included a puzzle about rabbit population growth that gave rise to the Fibonacci sequence.  The sequence is a simple but powerful pattern where each number is the sum of the two before it. Starting with 1 and 1, it continues: 2, 3, 5, 8, 13, 21, 34, and so on. Furthermore, if you divide any number above 5 in the sequence by its preceding number, you will get something approximating the Golden Ratio, the Golden Section, or the Greek letter Phi.  It’s a special number, approximately 1.61803 (higher numbers get closer and closer to the golden ratio), that can be found throughout the natural world, such as the arrangement of leaves, sunflower seed patterns, seashell spirals, pinecones, and galaxy arms—and now, astonishingly, in English football (or soccer as we say in America).

With Liverpool’s win earlier this week, the sequence is now complete when tallying the number of Premier League titles held by the league’s winning clubs since it was formed in 1992.

Premier League Title Wins Ranked from Least to Most

Fibonacci sequences are often held up by mathematicians as exemplars of the beauty of mathematics – and now, perhaps sports.