The waiting game: Markets, policy and the next move that matters
This past week reminded us that sometimes the most consequential market moments are the ones marked by stillness. There was no surprise from the Federal Reserve, no follow-through in the markets and no clarity yet on inflation, tariff-influenced corporate earnings, or global conflict. Instead, investors, policymakers and consumers alike are caught in a collective waiting game — watching for confirmation, evidence or disruption before taking their next steps.
Chief Investment Officer Thierry Hasse
No Move from the Fed—But Is That a Signal in Itself?
At its May 7 meeting, the Federal Reserve held interest rates steady, with Chairman Jerome Powell reiterating that the U.S. economy remains “solid,” supported by low unemployment and resilient demand. Still, he acknowledged growing uncertainty, particularly around the lagging effects of recent trade policy shifts.
While the job market appears strong, unemployment is a trailing indicator. By the time layoffs show up in the data, many businesses are already under revenue pressure and trimming costs to protect margins, and it is often too late for policy moves to blunt the broader impact.
While some criticize the Fed for reacting too slowly, it relies, by mandate and tradition, on economic data that reflects what’s already happened, not what might. That makes course corrections inherently reactive, not predictive. And it also gives credence to the old Wall Street saying: “The labor market is the last to know.”
Markets Hit Pause Despite Trade Progress
News that U.S. Treasury Secretary Scott Bessent has opened tariff negotiations with China—along with announcements of a trade agreement between the U.S. and U.K.—might have sparked a strong rally. Instead, equity markets marked time, finishing the week with modest losses.
Why the muted reaction? Much of the optimism may already be priced in. Investors are now watching for concrete results: Will these deals tame inflation? Will S&P 500 companies manage to hit the $264 earnings target for 2025 despite rising import costs? (Source: Barron’s)
Once again, markets are waiting for proof — not promises.
Consumers Pull Back Amid Growing Anxiety
The latest University of Michigan survey showed consumer sentiment falling for the fourth straight month. Fears of economic decline and rising prices are weighing on households, even as spending remains high — for now.
Retail sales surged in March and April, partly fueled by preemptive purchases ahead of expected price hikes. Vehicle sales, for instance, jumped to an annualized 17 million units, up from 16 million a year earlier. But this pattern, familiar from past inflationary episodes, often leads to weaker demand later as consumers pull forward future purchases. (Source: Fortune Magazine)
It’s another example of behavior driven by uncertainty — and another sign that households, like investors, are anxiously waiting to see what comes next.
Geopolitical Tensions Rise, But Financial Markets Stay Quiet
While investors continue to analyze inflation data, interest rates and earnings forecasts, several significant global flashpoints have quietly intensified. A 30-day ceasefire has been demanded of Russia by U.S. and European allies in support of Ukraine. In South Asia, India and Pakistan are working to de-escalate after experiencing their most serious military confrontation in decades over the disputed Kashmir region. Meanwhile, in the Middle East, the U.S. is attempting to revive a nuclear agreement with Iran, even as Israel is reportedly preparing for potential military action to disrupt Iran’s nuclear development.
Despite the gravity of these developments, financial markets have shown little reaction. The relative silence may reflect skepticism, desensitization or simply the fact that these events haven’t yet disrupted economic fundamentals.
Still, history reminds us that geopolitics can shift market sentiment suddenly.
What We’re Watching This Week
Well it looks like we will not have to wait very long for new market excitement as the tentative trade agreement between the U.S. and China announced on Sunday is sending stock futures much higher in Monday early trading. The investment backdrop remains anything but quiet. At Elevage Partners, we’re closely monitoring several key indicators that could shift the calm, specifically:
- Inflation data, to gauge whether tariffs and supply disruptions are feeding broader price increases.
- Corporate earnings guidance, particularly from companies like Walmart, Cisco and Applied Materials, which are reporting this week and may offer insight into business resilience amid economic headwinds (Source: Wall Street Journal).
- U.S. dollar strength, as its movement impacts import costs, global capital flows, and investor sentiment.
- Geopolitical developments, with an eye toward any signs that regional tensions begin to affect financial or commodity markets.
Staying alert matters more than ever. That includes what the market is reacting to, and what it’s ignoring.
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