CWS Market Review – May 13, 2025

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I have great news! The stock market is now flat for the year!

OK, I realize that may not sound that great, but it would have completely shocked, dumbfounded and flabbergasted any investor from three weeks ago. Since April 8, the stock market is up 18%. The S&P 500 is now above its 50- and 200-day moving averages.

Remember how the Great Trade War of 2025 was going to crash the economy and the stock market? Well, it seems those predictions were just a wee bit premature.

Yesterday, the White House and China agreed to defuse a trade war that was getting uglier by the day. President Trump said, “We’re not looking to hurt China.” From the New York Times:

The move by the United States, after President Trump had repeatedly declared that he would not lower tariffs without concessions from China, represented an acknowledgment of the costs of an all-out trade war with China. Despite the White House’s bluster, the Trump administration ultimately backed off, for now, from the steepest tariffs, and agreed to hold more formal talks with Beijing after companies and consumers started showing signs of economic strain.

The stock market took the hint and prices soared.

Yesterday the stock market had its second-best day in the last 2-1/2 years. For the day, the S&P 500 soared 3.26%.

The best market’s best day in the last 2-1/2 years—in fact, one of its best days in decades—came one month ago, on April 9th. It’s still early, but that day may go down as the start of a new bull market.

Here’s where it gets interesting, because both days (yesterday and April 9th) were surprisingly similar. In both cases, the markets rallied on news that the trade war tensions were easing. The S&P 500 is only about 4% from a new all-time high.

It’s as if yesterday’s gain was about one-third that of April 9th’s gain, even by category. Yesterday, the Nasdaq gained 4.35%. The S&P 500 High Beta index gained 5.46% while the S&P 500 Low Volatility Index gained a measly 0.15%. That’s very similar to the kind of action we saw on April 9th, just not as severe.

Many of the high-risk, fast-growth stocks did very well on Monday. For example, the Mag 7 ETF (MAGS) gained 5.8%. On the other hand, many high-yielding stocks like Altria (MO) and Duke Energy (DUK), lost ground. The lesson here is that investors were leaving safe havens and chasing risk.

It’s as if investors had been itching to do this for several week but were just waiting for official permission. Thanks to the president’s decision, they finally got it.

This was also reflected in the bond market where yields rose. The two-year Treasury, which is usually the most sensitive to the Federal Reserve, saw its yield rise ten basis points to 3.98%.

In the futures pits, traders altered their bets as to what the Fed will do. Now it looks like a June rate cut is off the table. In fact, traders don’t see the Fed cutting rates until September. This happened even as we got favorable inflation news today.

Much of the trading action we saw on Monday continued into Tuesday. The S&P 500 gained 0.72% on Tuesday. Again, it was a divided market. For example, the Nasdaq gained 1.61% while the Dow was down 270 points, or -0.64%. The S&P 500 Growth ETF gained 1.67% while the S&P 500 Value ETF lost 0.44%. This shows that investors are rotating out of safer areas in search of bigger returns. I don’t expect this trend to last long.

Inflation Falls to Four-Year Low

This morning, the government said that inflation rose by 0.2% last month. That was in line with Wall Street’s forecast. The inflation report brings the 12-month rate to 2.3% which is a four-year low. I should add that these numbers don’t fully reflect the effects of the trade war.

The core rate also increased by 0.2%. That was 0.1% below expectations. Over the last 12 months, core inflation has increased by 2.8%. The core rate excludes food and energy prices which can be very volatile.

After posting a 2.4% slide in March, energy prices rebounded, with a 0.7% gain. Food saw a 0.1% decline.

Used vehicle prices saw their second straight drop, down 0.5%, while new vehicles were flat. Apparel costs also were off 0.2% though medical care services increased 0.5%. Health insurance increased 0.4% while motor vehicle insurance was up 0.6%.

Interestingly, egg prices fell by 12.7% last month but are still up nearly 50% in the last year. While the inflation numbers are good, the tariff issue could still be a problem for prices. The stock market is clearly pleased that President Trump is willing to back away from his most aggressive stand on tariffs.

Here’s a look at “real” interest rates, meaning after adjusting for inflation. I used the core rate rather than the headline inflation, which I think presents a more accurate picture.

Many of the trends we saw in Monday’s market continued into today. Tech stocks, for example, did very well. Also, growth stocks outpaced value. This is what to expect if investors see interest rates staying higher for longer.

We recently completed a very good earnings season for our Buy List. Fifteen of our Buy List stocks beat earnings, one missed, and another reported inline.

We’re nearly done with Q1 earnings season so let’s look at where we stand. According to the latest data, 90% of the companies in the S&P 500 have reported results so far. Of those, 78% have beaten on earnings. That’s a little bit better than the long-run average. Companies are reporting earnings that are 8.5% better than expected. That’s also a little better than the long-term average.

Earnings growth is currently tracking an increase of 13.4% over last year’s Q1. That’s pretty good. At the end of March, Wall Street had expected growth of just 7.1%. If that number holds, and I think it will, then Q1 will be the seventh quarter in a row of positive growth and the second in a row of double-digit growth.

For revenues, 62% of companies in the S&P 500 have beaten on sales. That’s not so hot, and it’s below the long-term average. Companies are beating sales by only 0.7%. Revenue growth is currently tracking at 4.8%. If it holds up, then Q1 will be the 18th quarter in a row of revenue growth.

For Q2, Wall Street expects earnings growth of 5.2%, and 9.3% growth for the whole year. The much-predicted recession still hasn’t come.

Amphenol Jumps to New High

One of our Buy List stocks that’s done especially well for us lately is Amphenol (APH). We added the stock to our Buy List last year and it’s up 86% for us in a little over 16 months.

If you’re not familiar with Amphenol, it’s one of the world’s largest makers of fiber optic connectors, antennas, sensors and high-speed cables. Amphenol’s products are used in several different industries such as automotive, broadband communications, commercial aerospace, industrial, IT, data communications, military, mobile devices and mobile networks.

Three weeks ago, Amphenol reported outstanding results for its Q1. The company earned 63 cents per share, which easily topped Wall Street’s estimate of 52 cents per share. Sales were up 48% in U.S. dollars, and up 33% organically.

Amphenol’s operating margin improved to 23.5% and free-cash flow was $580 million. During the quarter, Amphenol bought back 2.7 million shares for $180.9 million and paid out $200 million in dividends. That means that $380 million was returned to shareholders.

For Q2, APH expects sales between $4.9 and $5 billion. That represents sales growth of 36% to 39%. Amphenol also sees Q2 earnings ranging between 64 and 66 cents per share. That represents growth of 45% to 50% over last year’s Q2.

Traders loved the report, as did I. In three days, APH gained 20%. I’m expecting more gains in the months ahead.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on May 13th, 2025 at 7:25 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.