📈 Weekly Market Outlook (May 19–23): Rebound Resumes Amid Trade Progress and Earnings Strength

After a volatile few months, U.S. equities roared back last week. The S&P 500 surged over 5%, marking the fourth positive week out of the last six. From trade optimism to cooling inflation and better-than-feared earnings, the bulls regained control — for now.

Let’s break down what drove markets higher and what to watch in the week ahead.

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Weekly Market Outlook (May19... May 18 · The Investor’s Edge: Spr... 8:08   ​

🔁 Rebound Resumes

Markets shook off recent uncertainty and found their footing. After dipping into correction territory earlier this spring, major U.S. indexes snapped back sharply, led by strength in tech, trade headlines, and moderating inflation data.

• S&P 500: +5% on the week
• NASDAQ: Entered bull market territory, now >20% above April 8 lows
• Volatility (VIX): Down 67% from recent highs

🤝 Trade Talks Shift Sentiment

Optimism around global trade played a major role in the week’s rebound.

• The U.S. and China agreed to pause new tariffs for 90 days and re-engage in meaningful negotiations.
• Weekend headlines suggest China is signaling flexibility on key trade issues — a significant shift.
• Agreements with the UK and EU are nearly finalized, while talks with India and Vietnam are progressing.

The shift from “trade tension” to “potential resolution” was a green light for risk-on sentiment early in the week.

📉 Inflation Moderates

The latest Consumer Price Index (CPI) report provided further signs that inflation is cooling:

• Headline CPI rose 2.3% YoY, down from 2.4% in March — the lowest since February 2021
• Core inflation (ex-food & energy): flat at 2.8%

With inflation moving in the right direction, markets are now pricing in the potential for interest rate cuts in late 2025 — a tailwind for growth stocks.

🛍️ Retail Sales & Consumer Confidence: Mixed Signals

• Retail Sales grew just 0.1% in April, following a 1.7% March surge — likely front-loaded due to tariff fears.
• Consumer Sentiment (University of Michigan): Dropped for the fifth straight month, now at 50.8, a 3-year low.

Despite the strong market rally, Main Street remains cautious, which could cap near-term upside if spending slows.

🧠 Fear & Greed Index: From Deals to Danger?

• Current reading: 71 – well into Greedy territory (vs 62 last week)
• This suggests overvaluation risks may be creeping in
• When the market gets greedy, smart traders consider buying protection (puts) or trimming risk exposure

💰 Interest Rates Rise, But for How Long?

• 30-year mortgage rate: flat at 6.96%
• 10-year Treasury yield: up to 4.44%
• 2-year yield: up to 3.99%

Rising yields often compete with equities, especially when valuations are stretched. However, as inflation continues to cool, there’s an expectation that rates may reverse lower — possibly by Q3 or Q4.

⚠️ Credit Downgrade: More Noise Than Panic?

Moody’s downgraded the U.S. credit rating to Aa1 from AAA due to rising debt concerns. Historically, markets have reacted strongly to such news:

• 2011 S&P downgrade: S&P 500 -6.66% next day
• 2023 Fitch downgrade: S&P 500 -1.38%

This time, the market shrugged it off, indicating better preparation or perhaps confidence in longer-term fundamentals.

💡 AI & Earnings: The Real Tailwind

We’re nearing the end of Q1 2025 earnings season — and it has exceeded expectations.

• Revenue growth is resilient
• EPS beats > misses
• AI spending is still surging
• CEOs are cautious in tone, but investing heavily in growth

AI is driving a new wave of margin expansion, which could support earnings per share (EPS) growth even in a slowing economy.

🔍 Key Events This Week

Here’s what to watch in the upcoming week:

Monday, May 19

• Market digests credit downgrade news

Tuesday, May 20

• Home Depot earnings (pre-market)
• Palo Alto Networks earnings (post-market)
• Several Fed speakers

Wednesday, May 21

• Lowe’s earnings (pre-market)
• Snowflake earnings (post-market)

Thursday, May 22

• Initial Jobless Claims (5:30 AM ET)
• PMI Data (6:45 AM ET)

Friday, May 23

• New Home Sales (7:00 AM ET)

🧭 Final Thoughts: Opportunity Amid Complexity

While the market is near recent highs and greed is rising, structural trends like AI, trade resolution, and moderating inflation may support continued upside — selectively.

Still, with interest rates rising and valuations stretching, now is a great time to:

• Stay nimble
• Be selective
• Focus on companies with real growth and earnings power