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WEEK AHEAD
May 5-9, 2025
While the recent market rebound has improved our overall trend-following signals, our economic signal remains cautiously skeptical for the time being. Our blended TAP signal remains in neutral territory (60/40) until further notice.
Week in Review:
The S&P 500 extended its winning streak to nine consecutive sessions on Friday, marking its longest run since November 2004. The index climbed 1.4% by the close of trading, fueled by a fading economic sentiment, strong jobs report, and renewed optimism surrounding potential China-U.S. trade talks. While in the bond market, the 10-year and 30-year yields were lifted to 4.308% and 4.789%.
April's nonfarm payrolls increased by 177,000—exceeding economist forecasts of 138,000, though down from a downwardly revised 185,000 in March. The unemployment rate held steady at 4.2%, and average hourly earnings grew by 0.2% month-over-month, though slightly below March's 0.3% pace. The Federal Reserve is expected to keep interest rates unchanged at its meeting next week, as the steady jobs data support a patient approach to rate cuts. Traders are now anticipating the first-rate reduction to occur in July rather than June.
Nevertheless, caution remains warranted as other indicators flash warning signs: JOLTS job openings fell to 7.192 million in March, missing the 7.490 million estimates, and the ADP nonfarm employment change report showed only 62,000 private sector jobs were added in April, sharply below the 114,000 forecasts. U.S. manufacturing also remained under pressure, with the ISM Manufacturing PMI falling to a five-month low of 48.7. Furthermore, U.S. GDP unexpectedly contracted by 0.3% in Q1 2025, reversing the 2.4% growth in the previous quarter.
Markets also found support from news that China is evaluating the resumption of trade negotiations with the U.S., contingent upon the removal of unilateral tariffs and a sincere approach from Washington. These developments sparked a rally across Asian markets, with Hong Kong's Hang Seng Index leading gains—Alibaba and Xiaomi surged 4.2% and 5.4%, respectively. Major indices in Japan and Australia gained over 1%, while South Korea, Singapore, and India posted more modest increases exceeding 0.3%.
Meanwhile, this corporate earnings week delivered a mix of surprises. Microsoft beat expectations with Q3 earnings of $3.46 per share on $70.1 billion in revenue, driven by AI-powered growth in Azure, which rose 33% year-over-year. Meta posted robust Q1 results and raised its AI investment outlook, lifting shares over 4% in after-hours trading. Amazon exceeded Q1 expectations with EPS of $1.59 on $155.67 billion in revenue, though weaker Q2 guidance pushed shares down 3%. Apple's Q2 results topped forecasts, with iPhone revenue at $46.84 billion and a modest improvement in China's performance. However, shortfalls in its services and wearables segments led to a 2% share drop despite a $100 billion stock buyback announcement. Berkshire Hathaway saw Q1 operating earnings decline 14% to $9.64 billion due to weaker underwriting results. Net income fell 64% to $4.6 billion, though the firm's cash stockpile reached a record $347.7 billion. In a landmark announcement, Warren Buffett confirmed he will retire as CEO by year-end, with Vice Chairman Greg Abel named as his successor.
Additional economic highlights include
Week Ahead:
Markets are now closely watching a series of key economic indicators and corporate earnings that could further shape sentiment. The standout on the U.S. economic calendar features the FOMC rate decision on Wednesday, where the Fed is widely expected to hold rates steady at 4.50%, accompanied by the FOMC Statement and press conference, which may offer clues on future policy direction. "The healthy 177,000 rise in nonfarm payrolls in April and the unchanged unemployment rate will reassure the Fed that there is no need to be hasty in lowering interest rates when it meets next week," said analysts at Capital Economics.
Other important data releases include ISM Non-Manufacturing PMI (Monday), Initial Jobless Claims (Thursday), and Crude Oil Inventories (Wednesday). In China, investors will parse the Caixin Services PMI (Monday) and a slew of trade and inflation data due Friday, including exports, imports, CPI, and PPI, which could provide further insight into the country's post-holiday economic momentum.
On the corporate side, Ford and Palantir will kick off the week. Tuesday brings results from AMD and Marriott International. Wednesday is packed with high-profile tech and consumer names, including Uber, Disney, and Arm Holdings.
Anecdotal evidence is beginning to emerge, suggesting that the effects of trade tariffs and rising input costs are starting to ripple through the economy. Businesses across various sectors are reporting pressure on margins, delayed purchasing decisions, and growing uncertainty in their supply chains. While the full scope of the impact has yet to be reflected in the broader economic data, these early signals point to the potential for more widespread disruption.
If trade negotiations fail to resolve in the near term, the consequences could escalate quickly. Rising costs—particularly for imported goods and raw materials—are likely to filter through to consumer prices. As households begin to feel the pinch, consumer spending, a key engine of economic growth, could slow materially. The effects may dent overall economic momentum and be reflected in the upcoming second-quarter earnings season. In fact, some of the damage may already be baked into current results, with companies potentially revising guidance downward in response to the shifting trade landscape.
"Trade should not be a weapon. Trade could be an act of war. America should do what we do best and they should do what they do best."
—Warren Buffett, Berkshire Hathaway's annual shareholder meeting, May 3, 2025.
Rags to Riches to Realism? Semiconductors in the Crosshairs Again
Semiconductors used to be back-office tech—quietly powering our devices from the shadows until Intel's 1990's "Intel Inside" slogan. Today, they're front-page news. From national security to the AI arms race, we believe the global semiconductor complex has gone from commodity to crown jewel. But as tariffs return and the dream of domestic chip independence runs into the brick wall of global complexity, markets are finally waking up to a harder truth:
This isn't just about chips. It's about control.
The Boom Was Real—But So Was the Dependency
NVIDIA led the way, riding a generational demand wave fueled by AI, cloud infrastructure, and compute-hungry models like ChatGPT. Investors piled in. Semiconductors were no longer cyclical—they were secular. NVIDIA's stock soared 800% off pandemic lows, powered by the belief that AI is the new oil—and GPUs, the new gusher.
NVIDIA Skyneted!?... oops—Skyrocketed.
But under the surface, the supply chain has always been fragile. Taiwan's TSMC makes the most advanced chips. ASML in the Netherlands builds the only machines that can etch them. Even the raw materials—like gallium and graphite—are primarily controlled by China.
That's not a diversified ecosystem. That's a geopolitical Jenga tower.
The Tariff Trap and the Reshoring Mirage
The recent pullback in semiconductor stocks isn't just a valuation story. It's a repricing of policy risk. Trump's latest round of tariffs and export controls is escalating an entirely different kind of battle—one fought across a hurricane of competing forces if not feelings.
And then there's "reshoring"—the go-to buzzword in D.C. Let's call it what we see it as: a mirage.
You don't reassemble a decades-old global supply chain with subsidies and hope certificates. U.S. fabs—if not a pipe dream—are still years away from being truly competitive in our view. Talent is scarce. Cost structures are higher. And Asia's lead—especially Taiwan's—likely isn't closing anytime soon.
We want chip sovereignty, along with those sugar plums. But if we thought our national debt was high, buckle up—the sticker shock is just beginning.
China's Counterpunch and the Real Risk
China isn't standing down. It's already retaliating with export restrictions on rare earth elements critical to chipmaking and EV batteries. The semiconductor world is rapidly splitting into U.S.-aligned and China-aligned spheres. That's not resilience—it's redundancy, fragility, and rising cost.
And maybe provocation, too.
For investors, the key risk is that this sector is no longer priced like a Cold War—it's still priced like a tech rally.
Or at least, it was.
Skynet Isn't Fiction—It's the Endgame
Here's the kicker: we don't believe this is about GDP or trade deficits. We believe it's about AI. The chips we're fighting over aren't just for smartphones and electric cars—they're powering autonomous weapons, predictive surveillance, and algorithmic warfare.
This is Skynet in slow motion.
The real question isn't who builds it first. It's who controls it once it's built? Where's Arnold when you need him?
Investing in the Fragile Future — What Now?
Semiconductors still have one of the most compelling long-term growth stories out there. AI demand isn't slowing down. Cloud infrastructure, smart devices, autonomous transportation, logistics, productivity tools, etc., still need to be scaled. The thesis is intact.
But the narrative has changed—from innovation to industrial vulnerability, growth to geopolitical exposure. These are no longer pure tech plays. They're chess pieces in a global contest of power, ideology, and supply chain sovereignty.
So can Semis say, with confidence: "I'll be back"?
That depends on whether the investors buying them understand the machine behind the machine—and the politics behind the processor.
Source: Singer, Pete. “Building Fabs in the U.S. vs Taiwan: Twice as Long, Twice as Much,” Semiconductor Digest, https://www.semiconductor-digest.com/building-fabs-in-the-u-s-vs-taiwan-twice-as-long-twice-as-much/.
Disclosure: The reader should not assume that an investment in the indexes described above was or will be profitable. The opinions contained herein are subject to change without notice and should not be construed as investment advice. Past performance is not indicative of future results.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.