Key takeaways
- The Fed remains on hold and continues a wait-and-see approach as Jerome Powell’s term comes to an end
- S&P ends the week at all-time highs, but earnings season points to higher dispersion
- China’s uneven recovery is reinforcing a steady but not accelerating global backdro
A resilient but uncertain phase
Last week’s data was a good reminder that we are likely in a “resilient but uncertain” phase of the cycle.
Reas more: Fed’s Holding Pattern Continues Amid Competing Risks
Growth is holding up, but it is not accelerating yet, and inflation is coming down—but gradually and in fits and starts. Against that backdrop, market participants have recalibrated their Fed expectations closer to where we have been, which is to say a “higher-for-longer” environment that is unlikely to see near-term hikes, but also unlikely to deliver meaningful rate cuts.
With that, interest rates are likely to remain a key driver of both bond and equity market volatility in the near term.
Fed remains on hold
The Fed kept rates on hold and maintained a wait-and-see approach, making it clear that more evidence is needed that inflation is coming down before cutting rates.
Recent U.S. data reinforced this picture. Q1 GDP showed slower headline growth, suggesting the economy is growing at a more moderate pace, while core inflation remained relatively firm—particularly in services—pointing to lingering price pressures. At the same time, the labor market continues to act as a key anchor. Weekly jobless claims declined to near historically low levels, and layoff trackers remain at their lowest levels in four years, underscoring continued stability in labor demand.
Taken together, this has continued to push expectations toward a higher-for-longer rate environment, with fewer and later rate cuts relative to earlier this year. As a result, bond yields have been more volatile as markets respond to incoming data.
Looking ahead, Powell’s last meeting as Chair marked this decision, with former Fed Governor Kevin Warsh expected to take over in June. While Warsh has expressed a preference for rate cuts, policy decisions will continue to be shaped by the broader Committee, which currently favors holding rates steady.
The key takeaway is that the Fed is not in a hurry, and markets will continue to try to interpret future moves through incremental data releases.
China growth improves, but headwinds persist
China’s latest macroeconomic data provided a mixed but somewhat encouraging picture.
First-quarter GDP growth accelerated to 5 percent, indicating some improvement in economic momentum. However, underlying challenges remain. Retail sales have been relatively weak, and property prices continue to decline on a year-over-year basis.
These dynamics suggest that additional policy support may be needed for China to achieve its full-year growth target.
From an investment perspective, valuations in Chinese equities remain more attractive relative to U.S. markets. This reinforces the case for maintaining diversification across regions.
Earnings season highlights growing dispersion
Earnings season took center stage this week, with S&P 500 earnings tracking toward a sixth consecutive quarter of double-digit growth—a notable sign of corporate resilience.
At the same time, the results highlighted a clear divide beneath the surface. While overall index performance has been relatively stable, there has been a lot of action at the company level. Some companies—especially in tech—reported solid results and continued demand, supported in part by AI-related spending. Others flagged cost pressures, slowing demand or more cautious outlooks and were quickly penalized by the market.
This points to a shift toward a market where individual company performance matters more than broad trends.
The AI story remains a major theme, but the conversation is evolving—from who is investing in AI to who can actually turn it into profits. There is also a growing focus on the timeline to profitability from the buildout that is currently underway. As a result, companies tied to AI infrastructure and platforms have generally held up better, while software and application-related companies are facing more pressure.
Overall, the near-term environment has been characterized by more volatility, as the longer-term winners and losers remain unclear.
China and the global growth backdrop
In China, the latest data continues to point to a recovery that is unfolding somewhat unevenly.
Services activity is growing, albeit modestly, but consumer demand remains inconsistent, and manufacturing continues to hover around flat or slightly contractionary levels. While this stabilization is a positive sign, the recovery is not yet accelerating.
As a result, policymakers are likely to continue targeted, incremental support rather than large-scale stimulus.
More broadly, this slow improvement in China, together with stabilization in Europe from weaker levels and slowing growth in the U.S., points to a global backdrop where growth is steady, but not particularly strong.
In this type of environment, market leadership is likely to remain narrow and can shift over shorter periods.
Positioning for a more selective market
The current environment continues to be defined by resilience, but also by uncertainty.
Geopolitical risks, including the ongoing Middle East conflict, are adding to that uncertainty, with oil prices trading near their highest levels in the past four years.
At the same time, equity markets remain strong. The S&P 500 reached new all-time highs and delivered its strongest monthly performance since late 2020, supported by solid earnings, AI optimism and expectations that policy will eventually ease.
However, beneath that strength, performance is increasingly being driven by company-specific factors rather than broad market trends.
Investors are looking more closely at who is likely to benefit from AI, who is facing pressure and how sustainable those opportunities are over the longer term.
In this environment, maintaining a focus on diversification, active selection and company fundamentals may become more important as these trends continue to play out.
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