Market Movers & Shakers

What a difference a month makes. The last edition of Notes from the Trading Desk was released shortly after the April 2nd “Liberation Day” tariff announcement that sent shockwaves through global markets and pressured U.S. assets. Since then, the CBOE Volatility Index (VIX) has roundtripped from 17 to 60 and back while the S&P 500 has advanced more than 23% from its April 7th intraday low – one of the fastest stock market recoveries on record. In fact, the S&P 500 now sits just 3% away from its previous all-time highs recorded in mid-February, while the Nasdaq is just 5% from its December peak.



Source: FactSet

Stocks continued to claw back losses last week on the heels of a meaningful de-escalation of trade tensions between the United States and China following talks held in Switzerland between top officials. The S&P 500 advanced 5.27% and the Nasdaq surged 7.15% as both indices recorded their third weekly gain in the past four weeks. The V-shaped recovery in stocks has been broad based. The advance/decline (A/D) line for the S&P 500 hit a new record high last week, reflecting broad participation in the rally. Likewise, the percentage of stocks trading above their 50-day moving average has surged from just 5% at the April lows to nearly 80%, the highest reading in eight months.



Source: FactSet

From a sector standpoint, all 11 sectors of the S&P 500 closed higher last week. Information Technology, Consumer Discretionary, Communication Services, and Industrials outperformed, while Financials, Energy, Materials, Utilities, Consumer Staples, Real Estate, and Health Care lagged the broader market. An executive order cutting domestic prescription drug prices pressured pharmaceutical stocks, while a triple whammy of a CEO departure, guidance cut, and a Department of Justice criminal investigation sunk shares of United Healthcare by more than 58% over the course of a month, dragging down the entire Health Care sector.

Despite the relief rally in U.S. stocks, Treasuries have continued to be weak across the curve, with notable weakness toward the long end. Concerns about ballooning fiscal deficits and mounting government debt have pushed yields higher. According to the U.S. Treasury Department, nearly $8 trillion in U.S. government debt is set to mature this year, much of which was issued at ultra-low interest rates during the pandemic when yields were below 1%. Last Friday, Moody’s downgraded the credit rating of the United States from AAA to Aa1, the last of the major rating agencies to strip the U.S. of its perfect AAA status, citing fiscal concerns. Yields on the policy-sensitive 2-Year U.S. Treasury neared 4% while yields on the 10-Year U.S. Treasury crossed 4.50%. Yields on the long bond (30-Year) briefly crossed 5% intraday before retreating to 4.90% by the close. 30-Year Treasury yields have not closed above 5% since October 2023, and before that the long bond last closed above 5% in August 2007 in the run-up to the global financial crisis. Elsewhere in credit, U.S. high yield credit spreads, as measured by the ICE BofA US High Yield Index Option-Adjusted Spread, have pulled back significantly from their April 7th high of 4.61%, showcasing lessening concerns over corporate financial stress.



Source: FRED, Federal Reserve Bank of St. Louis

Speaking of corporates—as we near the end of earnings season, results have been relatively strong for the first quarter. With 92% of companies within the S&P 500 having reported results, 78% have reported earnings-per-share above estimates and 62% have reported revenue above estimates. The current blended year-over-year earnings growth rate for Q1 2025 is 13.6%, which would mark the second straight quarter of double-digit earnings growth for the S&P 500, if the number sticks. Corporate profit margins remained robust during the quarter. The blended net profit margin for the S&P 500 for Q1 2025 is 12.8%, which is above the previous quarter’s net profit margin of 12.6%, above the year-ago net profit margin of 11.8%, and above the 5-year average of 11.7%.

Tariffs and uncertainty were the standout mentions on earnings calls this quarter. According to FactSet, the term “tariff” was cited on 91% of S&P 500 companies Q1 2025 earnings calls, more than any other quarter in the last decade. “Uncertainty” was a close second, mentioned on 84% of earnings calls this quarter. The only other quarter within the last decade where uncertainty was discussed and cited more was during the first quarter of 2020 during the COVID-19 lockdowns. Looking ahead to the second quarter, analysts are currently projecting earnings-per-share to grow roughly 5% year-over-year, while revenues are forecasted to rise by closer to 4%.

Updates & News*

The pace at which we have been deploying cash on the transition level has slowed recently as stocks (and valuations) approach previous highs and the volatility spike we witnessed in April has all but evaporated. However, it is important to keep in mind that our transition process puts cash to work on a stock-by-stock basis independent of what the broader market may be doing. In other words, despite the sharp snap-back rally and subsiding volatility on the index level, our process continues to identify opportunities to transition into a number of positions held across our strategies.

New accounts and accounts with recent deposits that have been under Tandem’s management for a week are right around 25% of the way invested in our strategies. By the one-month mark, new money is just over 50% of the way in line with our strategies, and by the three-month mark nearly 90% of the way invested.

Turning to portfolio news, Automatic Data Processing (ADP) reported quarterly EPS and revenue that exceeded analyst expectations. On its earnings call, ADP’s management team stated that it continues to observe stability in its client base and a continuation of hiring despite broader macroeconomic uncertainty. Along the same lines, payment giants Visa and Mastercard also reported quarterly results that beat forecasts on both the top and bottom lines, citing “resilient consumer spending” amid the uncertain macro environment. Elsewhere, Amphenol reported record first quarter results with revenue and earnings that both significantly exceeded the high end of its guidance range. Sales of $4.8 billion, up 48% year-over-year, and adjusted EPS of $0.63, up 58% year-over-year, were driven by organic growth in Amphenol’s IT datacom, mobile devices, and defense and communications markets.

Source: Source of all data is FactSet, unless otherwise noted.

*The transition level activity taken by Tandem is applicable to new manager-traded accounts and new money in manager-traded accounts, not the composite or firm-wide level. New manager-traded accounts and new money in manager-traded accounts are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions, this process differs from Tandem’s model-provided strategies, where money is invested on the day the account opens. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

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