Trade Deficit Rocks Wall Street—How to Navigate the May Sell-Off
Market news 07 may
Tuesday on U.S. exchanges proved challenging: the S&P 500 fell 0.8%, while the Nasdaq Composite dropped 0.9%. Investors focused on profit-taking ahead of new tariff measures and companies’ overly cautious comments about their annual outlooks.
Companies Offer Little Optimism
Ford and Mattel beat first-quarter expectations but declined to update their full-year guidance. The automaker warned of a potential $1.5 billion hit to operating profit from tariffs, while the toy giant cited unstable macroeconomic conditions and announced plans to raise toy prices. Their cautious stance only intensified sell-offs in sectors that might otherwise have shone during earnings season.
Widening Trade Deficit Sends Investors to “Safe Havens”
In March, the U.S. trade deficit surged to a record $140.5 billion—well above the $127.5 billion forecast—driven largely by a $22.5 billion jump in consumer‐goods imports, of which pharmaceuticals accounted for $20.9 billion. Exports rose by only $0.5 billion. This fueled concerns about Q1 GDP growth and pushed Treasury yields lower: 10-year notes fell to 4.31%, and 2-year notes to 3.79%.
Trump Targets Pharma Again
The president announced plans to impose new drug tariffs, with official details expected within the next two weeks. This added uncertainty to the pharmaceuticals sector, where Regeneron, Eli Lilly, Bristol-Myers Squibb, and Gilead all tumbled 5–7%.
Fed Keeps Rates on Hold
The Federal Open Market Committee began its two-day meeting, and most analysts expect it to maintain the federal funds rate at 4.25–4.50%. Recent macro data have come in stronger than feared, so markets now price in three rate cuts by year-end instead of four.
Earnings Season by the Numbers
Of the 365 S&P 500 companies that have reported Q1 results, 78% beat profit estimates, but overall earnings growth was just 6.7% year-over-year—down from the 11.1% expected in November. For full-year 2025, Bloomberg Intelligence analysts now forecast 9.4% EPS growth, compared with a 12.5% projection in January.
Global Snapshot: Asia and Europe Diverge
Europe’s Euro Stoxx 50 slipped 0.37% off its monthly high, whereas China’s Shanghai Composite climbed 1.13% to a fresh local peak. Japan’s market was closed for a national holiday.
This week, investors will watch U.S. trade policy developments, the FOMC decision, and Fed Chair Powell’s post-meeting remarks. On Thursday, weekly jobless claims and first-quarter nonfarm productivity and unit-labor-cost data (expected +0.7% and +5.2%, respectively) will be released.
Through week’s end, elevated volatility is likely as tariffs, corporate earnings, and macro indicators set the tone. Traders should prepare for short-term swings and closely monitor signals from both the Fed and the White House.