Stocks and Rates Moving Higher
May 12, 2025
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Markets are surging higher this morning as the U.S. and China are slashing tariffs. The U.S. tariff is being cut from 145% to 30% and China is cutting tariffs to 10%,1 a significant de-escalation of the trade war. While the cut is only in place for 90 days,2 the news continues to move massively in the right direction. House Republicans are releasing some details on the reconciliation bill and while changes to Medicaid are proposed, they have stopped short of major structural changes that would cause deep cuts to the program.3 While it is still early, the first data points from reconciliation are at best neutral for markets and could have negative implications as investors speculate on how much additional Treasury supply will pressure the bond market. Pharmaceutical stocks are under pressure this morning after President Trump announced last night that he plans to sign an executive order for a “most favored nation” policy for government pharmaceutical purchases.4
For the week ahead, the main economic catalysts include the consumer price index (CPI) on Tuesday, April U.S. retail sales and producer price index (PPI) on Thursday as well as the May Michigan sentiment report on Friday.5 Several Federal Reserve (Fed) officials will be speaking this week, although we expect the message to be consistent with Chair Powell’s press conference last week that the Fed can be patient and watch the data. Earnings season is winding down; however, investor conferences hosted by the investment banks should start to pick up.
Sources:
1,2,4CNBC – Dow futures rocket higher by 900 points after U.S.-China agree to cut tariffs: Live updates; 5/12/25
3The New York Times – Republicans Propose Paring Medicaid Coverage but Steer Clear of Deeper Cuts; 5/12/25
5MarketWatch – U.S. Economic Calendar; as of 5/12/25
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