The Week in Charts (5/14/25)
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The most important charts and themes in markets and investing…
1) One of the Biggest Comebacks Ever
After a 22% rally from the April 7 lows, the S&P 500 is now up on the year. This has become one of the biggest short-term comebacks in market history.
What fueled this massive rally?
A 180-degree reversal from the “Liberation Day” tariff announcement, with China being the latest example. The punitive 145% tariff rate on China was reduced to 30% over the weekend, with a 90-day “pause” put in place. In turn, China reduced their retaliatory tariff rate on the US from 125% to 10%.
It was an economic game of chicken and both countries blinked.
2) What Does the UK Trade Deal Portend?
In 2024, the US exported $80 billion in goods to the UK and imported $68 billion, resulting in a $12 billion trade surplus. This stands in sharp contrast to other major European countries with whom the US ran deficits of $16 billion (France), $44 billion (Italy), and $85 billion (Germany).
Given these set of facts one might have assumed that the UK would have been subjected to little or no tariffs on its goods, but this was not the case. In the framework for the deal announced last week, the US will be imposing a 10% tariff rate on UK goods (with the exception of Steel and Aluminum).
What does that portend for countries with whom the US has significant trade deficits? One would assume that their tariff rates will be higher, but if we’ve learned anything in the past month it’s that you shouldn’t assume anything. Everything with respect to global trade is an ongoing negotiation and there is no permanence to any of the rhetoric surrounding tariffs. Nor is there any performance to any “deals” that are ultimately reached. They can be torn up in an instant if they are not working for either country. And when new leaders with new agendas come to power, they can change all of what their predecessors put into place.
3) The World Strikes Back
International stocks outperformed US stocks by 16% in the first 4 months of 2025, the biggest 4-month outperformance on record.
While the year-to-date performance gap has has narrowed in May with the S&P 500 racing back to positive territory, the US continues to be one of the worst performing markets around the world. Eurozone ($EZU ETF) stocks continue lead, up over 22% on the year.
4) The Fed Pause Continues
As expected, the Fed continued to hold interest rates at 4.25-4.50% last week, citing tariff uncertainty as their chief concern. After cutting rates by 100 bps in the last 3 meetings of 2024, this was the 3rd meeting a row with no change.
We’ve seen a big shift in expectations for rate cuts over the past month, with market participants now pricing in only two 25 bps rate cuts in 2025, down from four cuts a month ago. The first of those cuts is now expected to occur in September, pushed back from June.
What actually happens will depend on the trajectory of inflation and employment, both of which remain at levels where the Fed seems content to wait and see.
The latest CPI reading came in better than expected at 2.31%, the lowest inflation rate we’ve seen since February 2021. Core inflation of 2.78% was the lowest since March 2021.
While moving in the right direction, these CPI levels do not yet reflect any impact from the new tariffs, with the fear being price increases will only start to show up in the back half of the year. As long as unemployment remains low (currently @ 4.2%), the Fed has the luxury of waiting to see if higher inflation actually materializes before resuming their easing cycle.
5) The Second Home Slump
Higher mortgage rates and declining affordability have not only caused a big slowdown in the primary housing market, but also the demand for vacation homes.
Total mortgage originations for second homes fell to 86,604 in 2024, a 66% decline from the record total in 2021 (258,289).
6) A Few Interesting Stats…
a) The US Government now spends more money on interest payments on the National Debt ($1.11 Trillion) than it does on National Defense ($1.10 Trillion).
b) The US Trade Deficit in Goods and Services widened to -$1.11 trillion over the last 12 months, the largest deficit in history.
c) The US imported a record $419 billion in goods & services during March 2025, a 24% increase over March 2024. US Exports rose 6% to a record $278 billion. The vast majority of the increase in imports came from pharmaceutical products, with companies front running the tariffs. Imports of automobiles, auto parts, and computer accessories also increased.
d) Berkshire Hathaway’s Cash Pile soared to a record $348 billion in the 1st Quarter, more than tripling over the last 3 years.
e) The Office Vacancy rate in Boston has increased to a record 14.2%, up from 6.7% in 2019.
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