May 8, 2025

The market ended slightly higher on what turned out to be a very choppy day of trading, which took place right near the end of the day, as what usually happens on these Fed sessions.

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The central bank left its main interest rate alone, as was widely expected, but also warned about rising risks for the U.S. economy.

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The Dow was the strongest item all session and ended with a 285 point closing advance to 41,113 led by gains in AMGN, CRM, HON, IBM, NVDA and DIS on a nice earnings report.

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The S&P had a more volatile day, as it was higher for most of the session until the President made the comment right after Chair Powell started speaking at 2pm that he was “not open” to pulling back the 145% tariffs on China even though his delegation is in fact going to be meeting with Chinese officials this weekend in Switzerland to try to work out some sort of accommodation.

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This led to a fast 28 point decline for the S&P, which then turned into a very late rally of around 50 points near the end of the session on an announcement that there would be a rescission of global chip sales, but for which countries it was not clear.

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So when all of the late drama finally ended, the S&P finished 24 points higher to 5631 on some tech stock gains plus some of the winners in the Dow.

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The Nasdaq was the laggard, lower for most of the day until that late chop announcement got some of the semiconductor users  higher such as NVDA, NOW and NFLX. And once again, AAPL ended lower which kept the Nasdaq under pressure after it reported that searches in its browser fell for the first time in April, and this really hurt GOOG badly as this was the one that provides the search engine.

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The Russell 2000 Index got pushed higher by 6 to1989 while the VIX dropped to 23.55 on the overall gains in equities.

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Indexes swiveled repeatedly through the day, and the Dow briefly climbed as many as 400 points on hopes that the United States and China may be making the first moves toward a trade deal that could protect the global economy. The world’s two largest economies have been placing ever-increasing tariffs on products coming from each other in an escalating trade war, and the fear is that they could cause a recession unless they allow trade to move more freely.

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The announcement for high-level talks between U.S. and Chinese officials this weekend in Switzerland helped raise optimism, but some of that washed away after President Donald Trump said he would not reduce his 145% tariffs on Chinese goods as a condition for negotiations, as mentioned above.  China has made de-escalation of the tariffs a requirement for trade negotiations, which the meetings are supposed to help establish.

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Such on and off uncertainty surrounding tariffs has helped create sharp swings within the U.S. economy, including a rush of imports in the hopes of beating tariffs. Underneath those swings, as well as surveys showing U.S. households are growing much more pessimistic about the future, the Fed said it continues to see the economy running “at a solid pace” at the moment.

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Fed Chair Powell said that gives the central bank time to wait before making any potential moves on interest rates, even if Trump has been lobbying for quicker cuts to juice the economy.

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“There’s so much that we don’t know,” Powell said. So like the rest of Wall Street and the world, the Fed is waiting to see what will actually end up happening in Trump’s trade war and whether his tariffs, which were much stiffer than expected, will hit as proposed.

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That is particularly the case after the trade war seems to be entering “a new phase,” Powell said, where the United States is conducting more talks on trade with other countries.

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To be sure, the Fed also said it appreciates that risks to the economy are rising because of tariffs, which could both weaken the job market and push inflation higher.

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“If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment,” Powell said.

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That could ultimately put the Fed in a worst-case scenario called “stagflation,” where the economy is stagnating while inflation remains high. Such a combination is hated because the Fed has no good tools to fix it. If the Fed were to try to cut interest rates to bolster the economy and job market, for example, it could raise inflation further. Raising rates would have the opposite effect.

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In the meantime, big U.S. companies continue to produce fatter profits for the start of 2025 than analysts expected.

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Dow component DIS jumped by 11% after easily beating analysts’ profit targets, raising its profit forecast and adding more than a million streaming subscribers.

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Companies, though, are also continuing to warn about how uncertainty in the economy is making it more difficult for them to forecast their own finances.

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Chipmaker MRVL slumped 8% after it postponed its investor day from June to an undetermined date because of uncertainty over the economy.

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In the bond market, Treasury yields fell following the Fed’s announcement. The yield on the 10-year Treasury eased to 4.27% from 4.30% late Tuesday.

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Markets in Europe mostly lost ground, while markets in Asia rose. Indexes rose 0.1% in Hong Kong and 0.8% in Shanghai after Beijing rolled out interest rate cuts and other moves to help support their economy and markets as higher tariffs ordered by Trump hit the country’s exports.

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Earnings continue this week with the following lineup: yesterday -     AMD, ANET, EA, ET, ROK, NVO CRL, Dow component DIS higher and SMCI, WYNN, RIVN, UBER, MRVL, SMCI lower; today – APP, SWKS, MELI, CVNA higher and Z, BROS, FLUT, FTNT lower; tonight - AKAM, COIN.

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Economic reports will see: yesterday –  F.O.M.C. fed rate decision, at which they kept the funds rate unchanged at 4.25% to 4.5%, and please read above for more details on what was said; today - weekly jobless claims eased back to 228,000.