Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
Investment and Options Strategist
Markets rallied on significant easing of US-China tariffs but ended the week cautiously amid Moody's downgrade of US debt. Tech and luxury sectors initially surged, driven by AI developments and tariff optimism, but mixed macroeconomic data kept investor sentiment wary. Bitcoin maintained record-high levels despite volatility in crypto-related equities. Volatility indicators eased notably, signaling reduced immediate market anxiety despite looming economic uncertainties.
VIX sharply declined throughout the week, marking lows unseen since early April, closing at 17.24 on May 16 (-3.3%). Short-term indicators (VIX1D, VIX9D) dropped significantly, reflecting decreased immediate fear despite Moody’s US debt downgrade.
Bitcoin sustained high levels around $102,438 (May 16) despite volatility, reaching a record weekly close near $106,500. Ethereum followed Bitcoin closely but faced sharp pullbacks on May 16 due to Coinbase's (-7.2%) cyberattack news. Crypto stocks were mixed, yet Coinbase (+9%) and CIFR (+21.8%) outperformed significantly by week-end.
US Treasury yields fluctuated, spiking early in the week as the 10-year reached the key psychological 4.50% on Tuesday (May 13). Moody’s downgrade of US debt triggered another surge late Friday, pushing the 30-year yield briefly to 5.0% again. German 10-year Bund yields closed at 2.59% (May 16) before weekend developments.
Gold prices dropped early in the week amid decreased safe-haven demand but rebounded notably after Moody’s downgrade of US debt, settling around USD 3,200. Crude oil prices remained volatile yet largely range-bound, driven by geopolitical events and supply concerns, trading near USD 66 (May 13).
The US dollar strengthened initially on tariff relief optimism but weakened significantly after the Moody’s downgrade. The Japanese yen gained strength notably, trading near 145.00 (USDJPY, May 16) following weak Japanese GDP data, signaling possible policy interventions.
Retail earnings and housing market data will provide critical insights into consumer and economic health, while Fed speakers will offer guidance amid interest rate policy scrutiny.
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