Key Takeaways This Week
U.S.-China Tariff Rollback: A 90-day tariff pause ignited a market rally, with the Nasdaq up 7% and the S&P 500 up 5.3%, led by Nvidia’s AI-driven surge.
Moody’s Downgrade: U.S. credit rating cut by one notch due to debt and deficit concerns, pushing Treasury yields higher.
Earnings Volatility: UNH faces turmoil, DKS sees investor skepticism on its Foot Locker acquisition, and CoreWeave hits post-IPO highs.
Market Outlook: Rising yields and fiscal imbalances pose long-term risks despite short-term optimism from tariff relief.
Market Overview
Last week saw a strong market rally sparked by a surprising 90-day rollback of U.S.-China tariffs—cutting U.S. tariffs on Chinese goods to 30% and China’s on U.S. goods to 10%. The Nasdaq surged over 7%, the S&P 500 gained 5.3%, and the Dow rose 3.4%, driven in part by Nvidia’s 16% weekly jump that fueled optimism in the AI sector. This enthusiasm offset softer signals like slower retail sales and a drop in consumer sentiment. The VIX fell below 20, indicating calmer investor sentiment and typically bullish expectations for the months ahead.
On Friday after market close, Moody’s downgraded the U.S. credit rating by one notch from Aaa, citing persistent government debt growth and deficits. This marks the third major ratings firm to downgrade U.S. debt after S&P in 2011 and Fitch in 2023. Debt is nearing $29 trillion, with interest costs now exceeding defense spending. Moody’s warned current fiscal proposals won’t reverse deficits and expects worsening debt and interest burdens over the next decade. The move pushed the 10-year Treasury yield higher, signaling increased borrowing costs and mounting pressure on Congress amid stalled tax bill negotiations. In aftermarket trading, major indexes declined, with SPY losing around 1%, while QQQ and IWM dropped approximately 1.3%.
Treasury yields climbed sharply, with the 10-year surpassing 4.5% and the 30-year nearing 5%, reflecting concerns over the U.S. fiscal trajectory. Moody’s highlighted the risks posed by proposed tax reforms that extend cuts and increase spending, potentially widening deficits by trillions over the next decade. Rising interest costs are projected to exceed defense spending—a historic shift that could pressure equities, particularly mid- and small-cap stocks. Additionally, tariffs continue to act as a drag on real incomes, equivalent to a 1.5%-2% tax according to Goldman Sachs, with limited evidence of success in restoring manufacturing. These fiscal and geopolitical risks could weigh on markets, overshadowing the temporary boost from tariff rollbacks.
On the corporate front, UnitedHealth (UNH) shares plunged to as low as $250—a roughly 34% drop from the previous Friday—before rebounding to $292, but still ended the week down about 23%. The steep decline followed CEO Andrew Witty’s unexpected resignation and suspension of the company’s 2025 financial outlook amid rising medical costs and operational challenges. Investor confidence remains shaken as UNH faces regulatory scrutiny and integration inefficiencies, though management expects growth to return in 2026. Boeing secured large jet contracts during President Trump’s Middle East trip, while Microsoft expanded its partnership with OpenAI, eyeing an eventual OpenAI IPO. Netflix remains a notable buy despite a premium valuation (~43x P/E), supported by strong subscriber growth, expected operating margin expansion, and new revenue streams including ad-supported plans and live sports. Other developments include FedEx expanding Amazon deliveries, Samsung launching a new smartphone, and Coinbase revealing a security breach ahead of its Friday S&P 500 inclusion—replacing Discover Financial Services (DFS), acquired by Capital One (COF) with the deal closing the same day.
eToro (ETOR) priced its U.S. IPO last week at $52 per share—above the expected $46-$50 range—raising up to $620 million. The Tel Aviv-based social trading platform, known for its crypto focus and 40 million users, surged 43% above its IPO price, hitting a high of $74.28 on debut day before retreating to close the week near $64—just $1 below its IPO day low of $65. Despite volatile macro conditions and tariff uncertainties, eToro’s strong 2024 profitability ($192 million net income on $787 million net contribution) and BlackRock backing helped fuel investor enthusiasm, marking a notable fintech debut amid a cautious market.
Looking ahead, Q1 earnings wrap up with key retailers like Home Depot and Target reporting soon, while May’s PMI and housing sales data will be critical to gauge whether growth can sustain amid tariff pressures and inflation risks. The Federal Reserve faces leadership changes and a potential policy shift between narrowing focus on inflation control or retaining broader crisis tools.
In summary, while tariff pauses and AI momentum offered short-term relief, rising bond yields and mounting fiscal imbalances highlight sustained headwinds. Investors should emphasize quality companies with strong cash flows and pricing power, preparing for increased volatility as markets navigate a more challenging macroeconomic and geopolitical landscape.
For more details, visit Barron’s here.
Episode 192 of The Compound and Friends delves into Warren Buffett’s Berkshire Hathaway succession, underscoring how leadership continuity and strong corporate culture are essential for long-term stability. The appointment of Greg Abel isn’t just a personnel change but a commitment to Buffett’s disciplined investment philosophy. The episode also discusses three key market shifts—monetary tightening, geopolitical fragmentation, and AI-driven disruption—mirroring current investment challenges. It stresses patience and focusing on companies with durable cash flows and moats rather than chasing short-term trends.
Watch it here: The Compound
Ed Yardeni’s latest webcast highlights the need for disciplined capital deployment amid growing macroeconomic and geopolitical complexity. He points to a market transition toward selective, analytical valuation approaches as investors face rising uncertainty. While consumer spending and labor data remain resilient, Yardeni advises caution with emerging technologies and stresses the importance of transparency, communication, and risk management. He highlights tech infrastructure as a more reliable opportunity in the current environment. This measured approach aligns well with the cautious stance many investors must adopt to navigate ongoing volatility.
For the full webcast, visit Yardeni Research on YouTube.
Earnings Recap
On Holding AG (ONON)
After the earnings report, On Holding shares showed strong positive momentum. The current price of $59.90 is above both resistance zones at $55.25 and $58. This reflects optimistic investor sentiment supported by a 43% year-over-year revenue increase to CHF 726.6 million and an upgraded full-year revenue outlook to +28% currency constant from +27%. Growth was fueled by strong direct-to-consumer sales, which rose 45.3% year-over-year, and successful new product launches like the Cloud 6 and Cloudsurfer 2. Despite recent leadership changes with the departure of co-CEO Marc Maurer, On’s brand momentum and innovation pipeline remain robust, easing concerns about management transition.
CoreWeave, Inc. (CRWV)
After the earnings report, CoreWeave shares surged to post-IPO highs, supported by NVIDIA increasing its stake from 5% to 7%, signaling strong confidence. The stock traded from an aftermarket high of $75 down to about $60, then stabilized and climbed to a new all-time high of $80.42, right at the second resistance zone of $80, which is twice the IPO price, surpassing the first resistance zone at $75. CoreWeave operates 32 data centers with over 250,000 NVIDIA GPUs, driving revenue growth of 420% year-over-year to $981.6 million, boosted by a $4 billion expansion of its cloud deal with OpenAI and strong demand from clients like Microsoft, which accounted for 62% of 2024 revenue. Despite a GAAP net loss of $1.49 per share, fundamentals indicate robust growth potential.
Dick's Sporting Goods (DKS)
DKS stock has been volatile following its Q1 report and the announcement of its intention to acquire Foot Locker (FL) for approximately $2.4 billion. The current price of $184.02 sits between the first support zone at $195 and the second support zone at $180.
The acquisition terms offer FL shareholders $24 per share in cash or 0.1168 DKS shares per FL share, valuing FL at a 66% premium to its 60-day VWAP and a 6.1x FY24 adjusted EBITDA multiple. DKS anticipates $100–125 million in cost synergies from the deal, which is expected to close in H2 2025. While the acquisition aims to expand DKS’s footwear business, investor concerns about the high premium paid, potential share dilution, and integration risks have weighed on the stock.
Q1 results highlighted DKS’s operational strength, with EPS guidance of $3.37 (above consensus) and +4.5% comparable sales growth. Despite this, FL’s weak Q1 guidance of -$0.07 EPS and ongoing sales declines added to market skepticism.
DKS expects the deal to be accretive to EPS in the first full fiscal year post-close, but near-term sentiment remains cautious. The stock’s proximity to the $180 support zone makes it a key level to watch for potential stabilization or further downside.
UnitedHealth Group (UNH)
UNH’s move is not earnings-driven but worth mentioning.
Shares plunged to multi-year lows following the unexpected resignation of CEO Andrew Witty and the suspension of 2025 financial guidance due to “unexpectedly high medical costs,” particularly in Medicare Advantage. Former CEO and current Chairman Stephen Hemsley was named interim CEO, raising concerns about long-term leadership stability.
Earlier, UNH reported weak 1Q25 results and cut FY25 EPS guidance, citing rising medical utilization, regulatory challenges, and margin pressure from integration issues with its Optum division. While growth optimism exists for 2026 through cost management and strategic adjustments, near-term confidence is shaken, compounded by reports of a criminal investigation into alleged Medicare fraud—claims the company denies as irresponsible reporting.
Currently trading near its first support zone at $292, UNH briefly undercut both support levels at $292 and $270, reaching as low as $250. Another key support zone lies around $200, which could serve as a potential bounce area or offer lucrative premium opportunities in June’s 200 quarterly puts, now significantly cheaper after declining from $9.50 to $2.50 as of Friday’s close. Observing price action and option activity at these levels will be critical.
Key Index Charts
Last week saw a strong market rally, with major indices and assets posting strong gains across the board. Note that this data reflects Friday’s close.
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