Good morning. U.S. equities closed out the week on a strong note Friday, capping a rally that has lifted major indexes well off their April lows. The S&P 500 is up 16 of the last 19 sessions and now sits just shy of the 6,000 mark after a more than 20% rebound since the “Liberation Day” tariff selloff. Trade optimism, strong sector breadth, and improving inflation data have powered the rally, with option expiration Friday further amplifying moves.

Sentiment, however, remains fragile. Preliminary University of Michigan consumer sentiment data fell again, dragged lower by rising near-term inflation expectations and tariff-related concerns. Despite that, consumers continue to spend, housing activity edged higher, and Treasury yields pulled back. Markets will be watching for signs this week that the recent tariff détente has staying power.

Futures show markets are set to open lower Monday morning after the US credit rating was downgraded over the weekend. Citing the federal deficit and the burden of refinancing existing debt in a higher interest rate environment, Moody’s dropped the country’s rating by one notch, in line with the other ratings agencies.

Trump Faces a Trillion-Dollar Tariff Disappointment
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Debt Debate Escalates Over Trump Tax Plan
WSJ reports on growing concern that the administration’s tax cuts could significantly increase the national debt, despite promises of offsetting economic growth.
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Trump’s Factory Jobs May Face a Labor Shortage
WSJ highlights the challenges of bringing industrial jobs back to the U.S., as younger workers show limited interest in manufacturing careers.
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U.K. and EU Sign Trade and Security Deal
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U.S. Consumer May Be More Resilient Than Feared
MarketWatch argues that household balance sheets and job growth could support continued spending even as sentiment weakens.
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U.S. Credit Rating Downgrade Raises Questions
MarketWatch and CNBC note that Moody’s downgrade of the U.S. credit rating may not trigger immediate volatility, but it reflects deepening concerns over fiscal sustainability.
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Trump Tax Bill Advances After GOP Blockade Ends
Bloomberg reports that Congressional Republicans have cleared the way for a revised tax package focused on corporate relief and investment incentives.
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Equity markets ended the week higher on Friday, with the S&P 500, Nasdaq, Dow, and Russell 2000 all finishing in positive territory. Health care and utility stocks led the way, while growth stocks continued to benefit from easing trade fears. U.S. mid-caps also joined the rally, pushing year-to-date returns for the S&P 500 to +1.3%. Bond yields declined, with the 10-year Treasury yield falling to 4.44%.

April housing starts rose 1.6% to an annualized pace of 1.36 million units, slightly below estimates but still a sign of stabilizing activity. Building permits, however, slipped 4.7%, hinting at near-term softness in future construction. Meanwhile, the University of Michigan's preliminary consumer sentiment index fell to 50.8, its fifth consecutive decline and the lowest reading since 2022. Inflation expectations jumped notably, with one-year expectations rising to 7.3%. Tariffs were cited by nearly three-quarters of respondents as a driver of inflation fears.

Despite inflation expectations edging higher, market momentum continues on the back of easing trade tensions and relatively strong economic data. As we move deeper into Q2, watch for potential rotation as investors reassess sector leadership and prepare for policy catalysts on tax, trade, and rates.