US equity markets have endured a turbulent week, initially expending their post-April rally pullback following comments from Federal Reserve chairman Jerome Powell. His remarks on a revised monetary policy framework hinted at rising long-term interest rates and suggested that “supply shocks” may be a norm in the economic landscape. This propelled US 30-year Treasury yields upwards, while unease rippled through markets, underscored by stagnant April retail sales and a significant five-year low in the Producer Price Index, reflecting squeezed corporate profit margins and cautious consumer behaviour amid escalating prices and tariff pressures.
However, by May 15’s close, US stocks rebounded impressively and erased earlier losses. This rebound was fuelled by renewed optimism from positive US-China tariff talks and a US-UK trade agreement. Walmart’s earnings, a barometer for overall consumer spending habits and sentiments, highlighted robust quarterly sales but flagged impending price hikes due to tariffs and economic instability. Meanwhile, traders have revised their expectations towards potential rate cuts by the end of 2025. This recovery lifted the S&P 500 back to its year-to-date peak, albeit suggesting that the recent pullback may have been a temporary, event-driven correction rather than a deeper structural downturn.
Despite the upbeat close, the risks remain. A May 14 report by Goldman Sachs cautioned that underlying risks persist, with the Trump administration’s tariff levels still above pre-April 2 figures, posing a threat to growth. The investment bank also highlighted concerns over high market valuations, concentration risks, and a postponed Federal Reserve rate cut timeline, now expected in December instead of July, potentially sustaining inflationary pressures. In response, it advocates greater portfolio diversification, favouring resilient growth and value stocks, scaling back US exposure amid a weakening dollar, and increasing allocations to recovering markets such as European banks. The firm also suggested the possibility of a near-term retreat given constrained upside potential.
From a technical perspective, the Nasdaq 100 Index chart unveils a compelling bullish reversal pattern. The chart shows an inverted head and shoulders formation with the head at 18,800 and shoulders extending from 19,100 to 19,600, alongside a neckline at around 20,000. A recent breach above this neckline signals upward momentum and projects a potential ascent to 22,800, a possible new all-time high. Investors should consider long positions aimed at 22,800 with stop-losses below 20,000 to shield against downturns. Existing investors with positions could retain them, and keep a close eye on key macroeconomic indicators, including Federal Reserve rate policies and US-China trade dynamics that could likely sway the trend.
The writer is equities specialist at Phillip Securities
