Key Takeaways This Week
The S&P 500's 2.6% weekly drop reflects heightened sensitivity to policy risks, notably escalating trade tensions and Fed leadership uncertainty.
U.S. 30-year Treasury yields above 5% highlight tightening financial conditions.
DECK, WDAY, and SNOW reported mixed results, with market reactions shaped by guidance and sector-specific headwinds.
AAPL's tariff risks raise logistical and pricing challenges, while QBTS and CRWV surged on technological advancements and strategic partnerships.
FOMC minutes and NVIDIA earnings will shape market direction amid prevailing uncertainties in a holiday-shortened week, as U.S. markets will be closed on Monday for Memorial Day.
Market Overview
The U.S. stock market faced a notable setback last week, with the S&P 500 dropping 2.6%, marking its worst weekly decline since early April. This pullback was largely driven by escalating trade tensions, as President Trump announced tariff threats targeting key economic partners—the European Union and Apple products specifically. These tariffs, proposed at 50% on EU imports and 25% on iPhones, reignited fears of a broader trade conflict that could slow global growth and pressure corporate earnings. The news came amid lingering uncertainty over U.S. fiscal policy direction and speculation regarding potential Federal Reserve leadership changes, which together unsettled investors.
Investor sentiment has become increasingly volatile. Data from Ned Davis Research shows the fastest swing from bearish to bullish sentiment since 2022, reflecting a market highly sensitive to political and policy developments. This rapid sentiment shift underscores the fragility of current market optimism. Meanwhile, short sellers have maintained their bearish bets, indicating skepticism about the durability of the recent rally. The increased volatility and sentiment whiplash suggest that policy announcements, especially around trade and the Fed, will continue to be major market drivers.
Big technology stocks, which had long been considered a pillar of market stability, revealed cracks under these pressures. The Roundhill Magnificent Seven ETF, representing the largest tech names, fell 2.5%, led by a sharp 7% decline in Apple shares following the tariff news. This correction spotlights the cyclicality within the tech sector, which remains vulnerable to inflationary pressures and slowing consumer spending patterns.
The healthcare sector itself remains at a crossroads. It has suffered a prolonged downturn, down 5.1% so far in 2025 and lagging behind the broader market over the past five years. Contributing factors include regulatory uncertainties, lingering effects from the pandemic, and a slower pace of breakthrough innovation. Additionally, high-profile disappointments, such as the collapse of UnitedHealth Group’s stock, have heightened investor wariness. However, technical signals suggest that healthcare may be near a rebound. Historically, sharp relative declines in healthcare stocks have often preceded strong recoveries. Recent insider buying in key companies supports this view, indicating confidence at the management level.
Despite these hopeful signs, risks remain. Healthcare earnings have become more volatile, margins are under pressure, and the sector’s performance is increasingly tied to macroeconomic factors like interest rates and inflation. Strategists recommend a selective approach, focusing on fundamentally strong companies with potential catalysts. For instance, Gilead Sciences stands out as a potential outperformer due to its anticipated FDA approval of a twice-yearly HIV treatment, a development that could unlock significant upside, with some price targets suggesting potential gains exceeding 20%.
Income investing strategies are evolving amid rising deficits, inflation worries, and increased volatility in fixed income markets. So far in May, Treasuries have declined by 5%, while Bitcoin has surged 17%, signaling a month-to-date shift as investors look for alternative assets amid uncertainty. With U.S. credit downgrades and a growing government debt supply, caution around long-duration bonds is rising. The current environment favors short-duration bonds and high-yield credit, which are perceived as less risky due to a larger share of higher-rated BB bonds. Additionally, mortgage-backed securities and private loans provide attractive income opportunities. For long-term investors, the traditional 60/40 portfolio remains relevant, supported by rising yields and potential productivity gains from AI. Despite short-term volatility, maintaining equity exposure, especially in the S&P 500, continues to be advisable for young investors.
In the housing market, listings have risen nationwide, yet buyer demand remains subdued due to affordability challenges. Mortgage rates have stayed above 6%, deterring many potential purchasers and pushing some sellers to reduce prices. The market is slowly shifting toward a buyer’s market, but not uniformly. Regions with strong economic fundamentals and low inventory increases, such as parts of the Midwest, are expected to maintain price stability. Conversely, overvalued areas with rising inventory—like Fort Myers, Florida, and Austin, Texas—face greater downside risk, particularly if a recession materializes. Buyers are advised to watch local trends closely and consider long-term holdings where negotiating power increases amid higher listings.
On the global stage, long-term interest rates have climbed sharply, with the U.S. 30-year Treasury yield now exceeding 5%. This rise elevates borrowing costs and pressures asset valuations, especially stocks. Japan’s fiscal situation adds complexity; its debt exceeds 2.5 times GDP, and bond yields have surpassed 3%, making Japanese debt more attractive than U.S. Treasuries once currency hedging is factored in. This dynamic could trigger Japanese investors to repatriate funds, amplifying volatility in U.S. markets.
The U.S. fiscal outlook remains a significant concern. The “Big Beautiful Bill” continues large budget deficits around 6% of GDP, pushing up bond yields despite recent Fed short-term rate cuts. Political gridlock makes meaningful spending cuts or tax reforms unlikely, exacerbating debt sustainability issues. Moody’s recent credit downgrade and widening CDS spreads signal growing investor caution, likening U.S. credit risk closer to weaker economies.
Looking ahead, the economy faces two main scenarios: a productivity surge fueled by rapid AI adoption, akin to the transformative impact of electricity, or a “deficits drag” scenario where stagnant productivity and mounting debt lead to inflation, slower growth, and deteriorating living standards. Both outcomes carry significant probabilities, urging investors to diversify and prepare for increased uncertainty. Policymakers must pursue fiscal reforms regardless of technological progress to secure long-term economic stability.
Finally, Alphabet’s Google epitomizes the tension in today’s innovation-driven market. Despite earning $100 billion largely from search, Google faces disruption from AI-powered chatbots like ChatGPT. The company’s cautious introduction of AI features reflects the “innovator’s dilemma”—balancing innovation with protecting core revenue streams. To maintain market leadership, Google must accelerate AI integration, accepting short-term profit sacrifices for long-term gains.
Key upcoming events this holiday-shortened week (U.S. markets closed Monday for Memorial Day) include the April durable goods report, FOMC minutes release, and earnings from major companies like Nvidia, Salesforce, Costco, and Dell. These data points will likely influence sentiment amid ongoing macro and geopolitical risks.
For more details, visit Barron’s here
Episode 193 of The Compound and Friends covers the "Big Beautiful Bill," a fiscal package that will modestly boost growth but add nearly $3.8 trillion to the deficit by 2034. The discussion highlights a gradual decline in U.S. Treasury credit quality compared to Germany and a sharp rise in long-term yields, signaling tighter financial conditions and higher borrowing costs.
Inflation remains unpredictable, and the Fed’s next moves are uncertain, yet markets stay resilient due to ample liquidity and private credit. The dominance of large tech stocks poses concentration risks, making diversification into international and small-cap stocks increasingly relevant.
Gold is emphasized as a strong hedge against uncertainty and inflation. The episode underscores the challenge of balancing fiscal stimulus with rising debt and advises cautious market positioning amid changing leadership.
Watch it here: The Compound
Ed Yardeni’s latest webcast reviews the recent sharp V-shaped recovery in the S&P 500, driven by the postponed China tariffs and easing market fears. However, Moody’s downgrade of U.S. debt underscores persistent fiscal risks and political uncertainty, contributing to the 30-year yield rising above 5%. Yardeni sees potential for temporary debt stress but expects it could prompt needed fiscal reforms.
Economic data remains strong, supporting consumption and labor markets, but the stock rally is mainly due to higher valuation multiples, not earnings growth, which are being revised downward due to tariff pressures. Mixed signals from consumer sentiment and inflation surveys add uncertainty.
Gold remains bullish long-term despite a recent correction, and the U.S. dollar’s strength is nuanced beyond the headline index. Overall, the market’s recovery feels relief-driven, with future challenges likely from elevated valuations and fiscal risks.
For the full webcast, visit Yardeni Research on YouTube.
Earnings Recap
Deckers Outdoor (DECK)
After the earnings report, Deckers Outdoor shares showed negative momentum, gapping down below the $116 support zone but holding the lower zone at $96.50-$100. Despite a strong earnings beat with $1.00 per share and 6.5% revenue growth year-over-year, the company issued weak first-quarter guidance and withheld full-year 2026 outlook due to macroeconomic uncertainty and tariff-related costs. Analysts downgraded the stock on slowing HOKA growth, margin pressures, and rising promotions. While Deckers posted a 56.7% gross margin and announced a $2.5 billion buyback, concerns over trade policies and consumer spending weighed heavily on sentiment.
Workday (WDAY)
After delivering strong Q1 results with EPS of $2.23, beating estimates by $0.22, and a 13.4% increase in subscription revenue to $2.059 billion, Workday tumbled over 12%, breaking key support levels at $260 and $250, with the 200-day moving average offering no support. Despite expanding non-GAAP operating margins to 30.2% and raising FY26 margin guidance to 28.5%, investor sentiment soured due to in-line Q2 subscription revenue guidance and the reaffirmation of FY26 subscription revenue at $8.8 billion, falling short of expectations for an upward revision. Slowing subscription growth and macroeconomic headwinds, particularly in IT spending across certain sectors, further fueled concerns. Analysts remained optimistic, citing Workday’s AI-driven innovations and disciplined operations.
Snowflake (SNOW)
Snowflake delivered a strong Q1 FY26 performance, surpassing expectations and raising FY26 product revenue guidance, highlighting continued momentum in AI-driven growth. The stock broke through the $194 area but faced resistance near the weekly trendline at $203. A move above this level could target a gap fill at $230. Analysts issued upgrades, citing robust enterprise adoption and growing traction for AI-focused products like Snowpark and Cortex AI. Strategic partnerships with Microsoft and Anthropic further strengthen Snowflake’s position, driving broader AI adoption and seamless enterprise integration. Despite a slight decline in the net revenue retention rate to 124% from 128% a year ago, customer loyalty remains strong.
Other interesting movers:
Apple (AAPL)
The stock fell below the $198 support level, with the 2000 IPO price of $196.50 acting as resistance on Friday. It’s crucial to see if it can hold support near $191 and reclaim $198, or risk further declines. Apple faces mounting pressure as President Trump threatens a 25% tariff on India-made iPhones sold in the U.S., demanding domestic production. Analysts like Wedbush’s Daniel Ives deem this unrealistic due to high costs and logistical hurdles, which could push U.S.-made iPhone prices to $3,500. While Apple continues diversifying its supply chain with India as a key hub, Wall Street largely sees U.S. production as financially unfeasible short-term. Barron’s highlights possible mitigation tactics such as cutting low-margin models or shifting to a two-year iPhone release cycle. Apple may also emphasize tariffs as a cost driver to influence public opinion. Despite political pressure, analysts remain skeptical of immediate major changes, underscoring Apple’s resilience and strategic flexibility.
D-Wave Quantum (QBTS)
D-Wave Quantum announced the general availability of its Advantage2 quantum computer, boasting 4,400+ qubits, improved coherence, and enhanced connectivity to address complex challenges in optimization, materials simulation, and AI. This production-ready system targets real-world applications. The stock broke above the key $15 resistance, now turned support, and gained 53% over the past week. With a short float over 20% and having gone public through a SPAC merger instead of a traditional IPO, the stock is prone to volatile moves after surpassing all-time highs.
CoreWeave (CRWV)
Speaking of a traditional IPO surpassing all-time highs, CoreWeave extended its strong momentum following a successful upsized $2 billion senior notes offering. The company also secured a multi-year partnership with Aston Martin Aramco as their Official AI Cloud Computing Partner, aiding their shift from on-premises to large-scale cloud computing to enhance agility and performance. The stock reached $119.48 premarket Thursday—just 52 cents below 3x its IPO price—before pulling back to around $100 by Friday’s close. The $120 level is critical to watch for either a false breakout signaling a major correction or a breakout confirming further gains. The previous high near $65 offers a solid entry point if tested again.
Key Index Charts
Last week saw broad weakness across major U.S. equity indices, with SPY down 2.54% and QQQ slipping 2.35%. Small caps underperformed, as IWM dropped 3.47%, highlighting increased market caution. DIA followed suit with a 2.40% decline.
Keep reading with a 7-day free trial
Subscribe to Price Action Playbook to keep reading this post and get 7 days of free access to the full post archives.