Last week’s news headlines were filled with records like consecutive up days, the biggest one-month market recovery, and more. At the same time, bearish records related to Trump’s first 100 days, consumer sentiment , inflation expectations , and more counterbalanced the news flow.

Last week’s economic data was a roller coaster that included consumer sentiment, inflation, employment , GDP , and more.

Some metrics continued to trend lower and even hit historic lows. One aggregate measure of economic report performance, the Citigroup) Economic Surprise Index (shown below), continued its slide lower, which suggests that, on balance, the reports were weaker than expected.

Additionally, the table below shows the expectations of recession in 2025 from early April, which look concerning.

Later, we’ll show data from an indicator that shows the odds of a recession in 2025 have increased as we enter May.

However, in the face of what appeared to be a bearish week for data, the S&P 500 marched higher EVERY day.

Then on Friday, an arguably bullish monthly employment report, propelled the major index through key technical levels (including the 50-day moving average) and into several widely followed conditions that give the bears good historical precedent to cry “top”.

Last week’s Market Outlook, “ Another Bessent Bounce! What Will It Take To Make #3 A Bottom? ” explained why the market had likely made a significant bottom and that there were two conditions investors should focus on to rely on the bullish move continuing:

1. A healthy earnings season
2. A calm resolution to the next big challenge for the markets - fending off a recession

Last week was the busiest week of this quarter’s earnings season, and as stated above, the continued rally now finds itself vulnerable to critiques of being challenged by many bearish  arguments including “extended price action, up against big resistance, and seasonally doomed by the popular ‘Sell in May’ six-month period.”

My base case is that while the two conditions mentioned above are in place, the recent bottom and bullish trend will hold and continue, respectively, and the risks of underperformance are on the upside, not the downside.

However, the bearish arguments mentioned above are legitimate; downside volatility between current levels and the April low should be expected, and the recession narrative is likely to grow louder.

This week, we’ll build on last week’s base case and look at how to navigate your portfolio from the perspective of a tactical long-term investor and/or agile discretionary trader.

#1 Corporate Earnings

After the busiest week of earnings season, Factset summarized the state of the season as follows:
“At this stage of the earnings season, the S&P 500 is reporting strong results for the first quarter. Both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of earnings surprises are above their 10-year averages.”

With 72 % of the companies in the S&P 500 having reported, the scorecard for the Q1 numbers looks like this…

Since the Magnificent 7 represents about one-third of the capitalization of the index, and is expected to account for 33% of the 2025 earnings growth in 2025. Below you’ll find a snapshot of expectations, recent reporting vs. expectations, and price performance since reporting.

2024 Reported, 2025-2026 Expectations

2025 Reports Vs. Expectations

Percent Returns Since The Day Prior to Reporting

On balance, earnings season is progressing well with only one of the Mag 7 stocks left to report, Nvidia (NASDAQ: NVDA ), which is expected to report on May 28th.

There are a few noteworthy considerations in the earnings data. First, it reflects “pre-tariff policy chaos” earnings. However, this doesn’t make it irrelevant, as it reflects earnings strength going into the difficult period we’re in now. Second, many companies have demonstrated confidence in their ability to navigate the tariff disruptions and even continued to provide future guidance.

Markets are still vulnerable to headline risk from the White House. However, one reason to believe the April low will hold if tested (and may not be tested at all) is that it represented a level of bearish sentiment and uncertainty that the market has now digested. This, combined with corporations demonstrating confidence in their ability to adapt, suggests the threats of tariffs have been priced in.

After Fighting Back The Threats, Can The Market Overcome The Consequences of the New Tariff Policies?

Inflation , stagflation, and ultimately a recession are the expected consequences of the direction of the current administration’s trade policies.

If history is any guide, the recession narrative will become a debate around whether or not the Fed can navigate a “soft landing” through the use of monetary policy.

Currently, however, the market’s focus seems to be far away from this level of concern, despite what “odds of recession” data might suggest.

For example, as noted above, in early April, reputable firms were raising their prognostications for a recession in 2025 to what seemed like alarming levels. As we enter May, you can see from the chart provided by Polymarket.com that the predicted odds of a recession in 2025 rose in April and remained elevated.

Polymarket data is a result of real money trading between two Polymarket participants of shares representing future event outcomes. Unlike sports betting, there isn’t a “house,” and you can change your trade (or bet at any time). Every event share has a binary Yes or No outcome, with the correct outcome paying $1. As a result, the price agreed upon for the shares represents the odds of the event’s outcome.

The Conference Board Survey Agrees With Polymarket

The chart by the Conference Board Consumer Confidence Survey shows a similar trend in rising expectations for a recession and even has its odds at a similar level.

If there is a recession, I would expect the market to break its April lows, so why is the market rallying now?

Before answering that question, let’s consider why these odds are rising and how the market responds to this data.

Consumer Sentiment Plunged on Tuesday

While there is no way to know exactly why the belief that a recession will occur is rising, one likely reason is that consumer sentiment has been very negative. In fact, on Tuesday, the Conference Board released data that shows consumer expectations fell for the 5th consecutive month, and reached their lowest levels since October 2011.

The official report stated the following….

The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—dropped 12.5 points to 54.4, the lowest level since October 2011 and well below the threshold of 80 that usually signals a recession ahead.

It also stated…

April’s fall in confidence was broad-based across all age groups and most income groups. The decline was sharpest among consumers between 35 and 55 years old, and consumers in households earning more than $125,000 a year. The decline in confidence was shared across all political affiliations.

Here’s the chart of Consumer Confidence.

It is important to note that the Present Situation Index is not falling as sharply and has a history of diverging from the trends in expectations data. This suggests consumers are increasingly pessimistic about the future, but feelings about their current situation are less bad.

Regardless, this data is a valid concern with respect to adversely impacting consumer spending, which is a major driver of GDP.

GDP Plunged on Wednesday

On Wednesday, investors were prepared for the GDP data to be slower (0.2%) than the 2.4% reported the previous quarter, but they were not expecting a -0.3% report!

As you can see from the chart below, this is a dramatic deviation from the trend.

The headline surprise sent the SPY down almost 2% by mid-morning trading. However, in a remarkable comeback, the market didn’t just close higher, it traded over the high of the prior day.

When this report rocked the market, we were live in our weekly live mentoring for traders, and I was able to demonstrate how to buy such a decline based on strategies we use all the time to buy reversals. With a little luck, some trading intuition, risk management rules, and understanding that the GDP headline was a misrepresentation of weak growth that likely spooked the market, it became an easy position to hold all day, through Thursday, and then into the Friday gap higher.

If you’d like to consider being a part of this live in the market mentoring, and see the replay of this session, contact Rob Quin at [email protected] or www.marketgauge.com/call.

The GDP headline was misleading. Growth may be slowing, but the reason GDP fell so much more than expected is that imports are used in the calculation, and there was an unusually large amount of imports as companies tried to front-run the tariffs!

Over 50 percent of the inputs we need to produce the goods we make in America are imported! As a result, Trump’s attempt to help (or force) companies to manufacture in America to reduce our trade imbalance created the biggest drag on GDP by increased imports since 1947!

Above, I said that our companies will figure out how to navigate the administration’s policies, but I didn’t say there wouldn’t be unintended or unpleasant consequences.

This is just one example of how important it is to avoid assuming that you know how the market will react to the headline data. Trade the market action in response to the news, NOT the expected reaction to the news.

Finally, Bullish News On Friday

The employment report was important and bullish for several reasons.

In summary, it was ‘hard data’ that is supportive of an economy demonstrating firm labor demand, increasing labor supply, and muted labor growth.

You don’t need to be an economist to see that the Nonfarm Payrolls chart below represents a consistent trend of new jobs (Nonfarm Payrolls which measures the change in the people employed).

On the labor demand side, 518,000 new people entered the labor force, and the labor force participation rate increased slightly. This suggests that people who were not looking for work previously returned to the job market.  In an environment where there is concern that the deportation of immigrants and prevention of immigration will shrink the labor force, this increase in labor demand is a welcome bullish for the economy.

However, it is possible that the increased labor participation is a sign of hardship, even if it also represents a healthier economy.

Finally, wages as measured by Average Hourly Earnings remained steady with a modest year-over-year decline, as shown in the chart below. This is supportive of further hiring and avoids the fear of wage-fueled inflation.

The Simple Summary of The Market’s Faith In the Economy

As we’ve covered many times in prior issues of Market Outlook, the best advice for anticipating the health and direction of the economy is found by watching the trends and levels of interest rates.

This too, has been distorted recently by the behavior of our nation’s politicians and the new trade policies.

However, the narrative of an upcoming recession will weigh most heavily on the stock market when investors believe that the Fed will not be able to use monetary policy to provide a soft or ‘no landing’ path for the economy during periods of slowing growth.

This is one reason why the odds of recession can rise and the record-breaking bearish economic news can rattle market commentators while the stock market climbs higher seemingly unfazed.

One way to measure how concerned the market is about the Fed’s position is to track how the market bets on expected Fed moves.

In the table below, you can see what the market is expecting now vs. last week with respect to Fed rate cuts . When the market believes the Fed should be concerned about growth, it looks for more cuts or faster cuts, it’s getting nervous.

When it pushes the cuts out in the future or stops expecting them, it usually means the market has more confidence in the economy, which should be bullish for stocks.

Last week, the market had plenty of data that could have raised fears and reasons to expect higher odds of a recession weighing on stocks in the near future.

Not only did stocks not respond with fear, the Fed funds market also supports the belief that the economy doesn’t need a boost from the Fed right now.

The Simple Technical Picture

If you want to keep the market analysis simple, the chart of the SPY below has the key support and resistance levels on it based on the 50 and 200-day moving averages and major swing highs and lows that have multiple points that line up.

At the beginning of this article, I wrote that my base case is that:

1. While the earnings season outlook is good, and
2. The market is not indicating that the economy is about to enter a recession.

The recent bottom and bullish trend will hold and continue, respectively, and the risks of underperformance are on the upside, not the downside.

The risk management of this scenario using the chart above is to be bullish as long as the SPY is above the black horizontal line at 565.

The green line is the July 2024 high that has proven to be a pivotal level so it could provide support or resistance and should be respected.

The red line is the January Calendar Range low and a level the market stopped at on the way down in early March and retraced up to in April, and is currently very close to the 200-day moving average. This is the most important level. If my base case didn’t have a bullish bias, this level could be the level above which you should be bullish and below which bearish.

I, however, consider the black line at 550 to be the low end of the bullish zone. Until the market moves below 550 it is digesting the bounce off the low.

So above the red line at 575 is bullish, and below the black line at 550 bearish.

This also means if you’re so inclined to sell because it’s May, waiting until the market goes a little lower (below 550) doesn’t increase your risk by much and keeps you in the market if it continues to climb in defiance of the seasonal pattern.

Summary: Markets have continued to strengthen off of their extremes and have started to reclaim important pre-liberation day levels, though volatility remains elevated and we are reaching some short-term overbought conditions. The 200-Day Moving Average could act as resistance. This period of elevated market volatility is unique.

Risk On

• The major indexes were all up 3 to 3.5% on the week with all of them reclaiming their 50-Day Moving Averages. Though the sharp move higher has them approaching short-term overbought conditions on price. (+)
• Volume patterns confirmed the move up, heavily favoring accumulation days. (+)
• 12 out of the 14 sectors were up on the week, led by Transports and technology, pointing to growth, while Gold miners were down. (+)
• The New High New Low ratio continued to improve. (+)
• The color charts (moving average of the number of stocks above key moving averages) are positive in the short-run and starting to improve on the longer-term time periods. (+)
• Risk gauge improved to 100% risk-on. (+)
• Both value and growth continued to improve with Growth leading and neither in overbought condition. (+)
• Four of the six members of the modern family saw phase improvements. (+)
• Foreign equities continued to outperform the U.S. with developed equities hitting new recent highs. (+)
• Soft commodities softened this week, a potential positive for inflation forecasts. (+)
• Bitcoins strength continues as it looks to take out its all-time highs. (+)

Neutral

• The McClellan Oscillator is confirming the up move, though running very rich at its highest levels in quite some time. (=)
• Volatility continued to weaken with the market’s move higher but remains elevated. (=)
• Gold ’s longer-term trend is intact, but currently correcting from overbought levels. (=)
• The dollar has started to stabilize after absorbing a large move over the last few months. (=)
• Rates are in a trading range as it waits for new information about the economic outlook. (=)
• Early May tends to be a weaker part of an overall strong seasonal trend. (=)

Risk Off

• All the indexes are below their six-month calendar ranges, with some cycle theorists predicting a short-term top next week. (-)
• The number of stocks above their short-term moving averages have hit overbought levels on all key US Stock Indexes(-)