Stocks hit the brakes as visibility declines and obstacles appear in the road ahead

ANTHONY SAGLIMBENE – CHIEF MARKET STRATEGIST, AMERIPRISE FINANCIAL

WEEKLY MARKET PERSPECTIVES — May 27, 2025

• All eleven S&P 500 sectors closed the week lower. Consumer Staples (-0.4%) helped mitigate the selling pressure, while Energy (-4.1%) faced added headwinds with oil prices moving lower.
• U.S. Treasury prices were mostly weaker across the curve, particularly at the long end. The 30-year U.S. Treasury yield jumped 14 basis points, ending the week above 5.0%.
• Gold jumped 4.8%, West Texas Intermediate (WTI) crude moved lower on possible OPEC+ production hikes, and the U.S. Dollar Index ended lower following four weeks of consecutive gains.
• House Republicans advanced a sweeping bill that would make permanent existing individual tax rates and preserve the 21% corporate rate. The bill includes several other provisions across business, state, and local tax deductions (SALT), reforms around Medicaid and student loans, and phases out or repeals key provisions of the 2022 Inflation Reduction Act. Several Washington watchers believe a version of the bill can pass through the Senate in July before the U.S. debt ceiling is breached.
• Retail earnings and updates on the consumer provided a mix of takeaways. Home Depot, Lowe’s, TJX, Ross Stores, and Target all finished the week lower after reporting profit results and outlooks. Some withdrew full-year guidance due to tariff uncertainties, others reaffirmed guidance, and all provided a generally guarded assessment of the operating environment moving forward.

Stocks hit the brakes as visibility declines and obstacles in the road appear.

Following weeks of aggressive gains since April's steep declines, the rollercoaster ride in markets may be starting to finally take a toll on traders' willingness to keep bidding stocks higher. Earnings reports from Walmart, Home Depot, and Target didn’t exactly impress investors, with Target, for example, reporting disappointing results, cutting full-year guidance, and pointing to tariff headwinds as a reason for some of the company's uncertainty. In addition, Walmart said it would need to raise prices on some of its product offerings based on tariffs, which immediately drew ire from President Trump. Unfortunately, the message to other retailers that reported after Walmart was to be less transparent on earnings calls about tariff impacts. That’s not a great result for investors attempting to see around the bend.

Importantly, overall catalysts to push stock prices higher appear lacking at the moment. Market-moving economic releases are currently thin, the Q1 earnings season is mostly in the rearview mirror (sans NVIDIA's release on Wednesday), and progress on trade developments has been lacking as of late. In fact, if anything, the trade picture is beginning to darken again. President Trump on Friday, in a social media post, threatened Apple with 25% tariffs or more on iPhones made outside the U.S. He then followed up less than 30 minutes later with another post "recommending a straight 50% tariff on the European Union" beginning June 1 because he believes trade negotiations with the block have stalled. After the President signed an executive order to overhaul the Nuclear Regulatory Commission to speed reactor development (a win for helping boost and diversify U.S. energy sources), Trump said the 25% tariff comment on iPhones would include all smartphones not made in the U.S. However, over the weekend, Trump decided to extend the EU tariff deadline from June 1 to July 9. 

Here are some real-world points to consider. The ecosystem that supports Apple and Samsung's efforts to make and assemble smartphones, for example, is enormous, entrenched across Asia, and took over a decade to build. The cost of moving that ecosystem here to the U.S. would likely push the price of smartphones up to levels that would be simply unaffordable for most U.S. consumers. Notably, the scale at which Apple, for example, uses facilities and surrounding communities across Asia to build iPhones is incomprehensive to most people outside Asia. A former Apple manufacturing engineer framed the scale well last week using the example that it would take every person in Boston (roughly 500,000 people) to stop what they were doing and begin assembling iPhones to match what is accomplished in Asia today. From a business perspective, it makes far more sense for Apple to take the 3.0% to 3.5% hit on iPhone margins than undertake the massive, costly, and disruptive effort to move its iPhone production to the U.S. 

As for the tariffs on the EU, Bloomberg estimates that the 50% tariffs would hit roughly $321 billion worth of U.S./EU trade, potentially shaving GDP by close to 0.6% and boost prices by more than +0.3%. Bottom line: Consumers, businesses, and governments are continuing to grapple with an operating environment that is very challenging to navigate and where rules, processes, and previously well-established structures are in a state of constant flux. It's not surprising that stocks have started to walk back from their recent run to new highs, given the current macroeconomic backdrop and after already aggressive gains from the April lows.

In addition, the GOP One Big Beautiful Bill Act that passed in the House last week, which included several last-minute changes, has also stalled stock momentum. Following Moody's downgrade of the creditworthiness of the U.S., the GOP's proposed bill and its impacts on longer-term debt and deficits are now front and center with investors.

Notably, the Congressional Budget Office (CBO) said the House's plan (before last week’s changes) would increase the deficit by $2.3 trillion over ten years. The Joint Committee on Taxation projects the bill will add $3.8 trillion to the deficit over the same period. Bottom line: The One Big Beautiful Bill Act still needs to move through the Senate, and changes to its final draft are very likely. However, based on what is being proposed in Congress, investors should expect the fiscal situation of the U.S. to likely worsen over time based on the cost of maintaining the current tax policy, accounting for the additional measures included (e.g., SALT adjustments) and without making more significant cuts to spending. Notably, government bond yields have moved higher in response to what is likely increased deficit spending in future years, and while the U.S. government has lost its triple-A rating status across all major credit rating agencies. Higher government bond yields, to some extent, are also beginning to dampen stock momentum.

All that said, major U.S. stock indexes remain on track for gains in May. After a roller coaster ride in April and May, stocks could use a chance to catch their breath before a new batch of economic data pops up in June, and the next round of earnings releases begins in July. And did we mention the 90-day reciprocal tariff reprieve ends in early July? Bottom line: A little consolidation around current levels for a period wouldn't necessarily be a bad development in our book.

The week ahead:

This week’s calendar should help fill in a little color on the economic environment, with looks at April durable goods, a second look at Q1 GDP, April PCE data, and May consumer confidence. As mentioned in our opening, NVIDIA’s earnings report will be the market highlight of the week.

• Last week, NVIDIA snapped a four-week winning streak. In Wednesday’s earnings report, investors will be looking for additional impacts on profits from President Trump’s April announcement banning NVIDIA from selling its H20 chips to Chinese customers, which the company said it expected to take a hit of up to $5.5 billion in the April quarter, as a result. Profit margin trends, uptake of its most advanced AI chip (Blackwell), and a general assessment of the AI environment and the company’s overall solution set will likely be key areas of focus in the earnings call.

• Other earnings of note this week include reports from Salesforce, HP, Dell, Costco Wholesale, and AutoZone.

These figures are shown for illustrative purposes only and are not guaranteed. They do not reflect taxes or investment/product fees or expenses, which would reduce the figures shown here. An index is a statistical composite that is not managed. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.