Trading update : 16 May 2025

Everyone loves a rally, and investors weren’t disappointed when the US and China called a truce on the escalating trade war. US equities surged and optimism quickly shifted, with hopes the US could sidestep a recession. A stronger-than-expected earnings season also helped to push stocks further into the green, erasing a lot of 2025’s losses.

Trade truce sparks rally

A sharp rebound in risk appetite following a reprieve in the trade war between the US and China spurred a stock rally as markets are hopeful for a broader agreement between the world’s two largest economies. The truce sent safe-haven assets – bonds, gold and haven currencies – lower, while Wall Street surged after solid gains in Asia and Europe. The S&P 500 Index (VOO-NASQ) jumped 2.5% to trade above President  Trump’s “Liberation Day” shock. Equities big and small advanced while a surge in big tech drove the Nasdaq 100 toward a bull market. The Dow Jones Industrial Average added 2.5%.

Levelling out

The S&P 500 (VOO-NASQ) erased its 2025 losses, and the Nasdaq 100 climbed 1.6% after trade tensions between the US and China eased and a surprisingly positive US earnings season spurred optimism. The Bloomberg Magnificent Seven Index of Megacaps, which includes NVIDIA (NVDA-NASQ), Apple (AAPL-NASQ), Alphabet (GOOGL-NASQ), Meta (META-NASQ), Amazon (AMZN-NASQ), Tesla (TSLA-NASQ) and Microsoft (MSFT-NASQ), added 2.2%. 

“Buy America” trade is back

Goldman Sachs Group Inc. lifted its US stock targets, as the easing of trade tensions between the US and China fuels a comeback of the “Buy America” trade. Bloomberg reports that bank strategists now see the S&P 500 Index (VOO-NASQ) reaching 6,500 in the next 12 months, up from 6,200 previously. The upgrade follows the recent Wall Street rally after negotiators from the world’s two largest economies agreed to temporarily lower tariffs, with traders betting that a US recession can be avoided. Goldman recommends investors focus on shares of companies with high pricing power that can maintain margins in the face of elevated input costs.

Crabbing markets

Despite some progress on trade negotiations and ceasefires, markets will likely trade in a choppy, sideways pattern until the Fed cuts rates, likely in Q3. This would set investors up for the seasonal Q4 kick into the end of the year. Investec flow data echoes this view as US money market funds are seeing their biggest inflows in a few months while US equity markets continue to see the largest outflows in years.

Rebound FOMO

Were you one of the investors forced to chase the stock rally sparked by the US-China trade truce? Bank of America Corp. strategists said many missed out on much of last month’s rebound. Results carried by Bloomberg from a survey by the bank conducted before the trade talks in Geneva showed fund managers were a net 38% underweight on US stocks, the most in two years. Exposure to the dollar was the lowest since 2006, with about 40% of respondents looking to increase hedges against declines in the US currency. Remember, time in the market typically beats timing the market.

Momentum shift

The negative earnings-growth momentum that has plagued US equities for months is finally taking a turn for the better. According to Bloomberg, a Citigroup Inc. gauge of earnings revisions, based on the number of upgrades and downgrades, has turned positive for the first time in six months, implying analysts’ estimates could soon be heading higher.

Fed cuts cut

Traders lowered their bets on the Federal Reserve’s interest-rate cuts this year, pricing in just two reductions for 2025 after the US and China agreed to cut tariffs and moderate their trade war. Traders still see the first quarter-point cut in September.

US slowdown

America’s trade truce with China may help avert a recession but won’t prevent a slowdown, reports Bloomberg. The lowered levy on Chinese imports is still higher than when Trump took office and economists see a weakening job market, and faster inflation, putting the US economy on track to grow significantly less than in 2024. The early inflationary signs are there, with US core CPI looking like it rose 0.3% in April, potentially foreshadowing a broader acceleration as companies seek to pass on higher tariffs.

Sector focus: Social media

Countries in the East are pushing some of the toughest new laws in an attempt to rein in TikTok, Instagram and Snapchat. According to a Bloomberg report, governments across the Asia-Pacific region are leading the global charge to protect children from online harms, presenting an unprecedented challenge to the likes of ByteDance Ltd., Meta Platforms Inc. (META-NASQ) and Snap Inc., in markets with some of their largest and most youthful user bases. Australia passed a law late last year requiring social media platforms to keep children under the age of 16 off their services. New Zealand’s governing party last week put forward a bill that mirrors Australia’s move. Indonesia is formulating restrictions for those under 18 accessing social media. Malaysia is requiring social media firms to obtain licenses to operate in the country, while Singaporean policymakers have signalled they’re open to laws governing minimum age.

Stock focus: Anglogold Ashanti

The Q1 2025 earnings release from Anglogold Ashanti (ANG-JSE) was positive, with production up 22% year-on-year, which is just 1% below FY25 estimates but typical for the period under review. Net debt declined by 60% to $525 million from $1.322 billion in Q1 2024, thanks to a strengthening balance sheet, with a significant increase in free cash flow. The company also delivered a base dividend as promised at US$c12.5.