Last Week on Wall Street – May 10th, 2025

S&P 500: -0.47% DOW: -0.17% NASDAQ: -0.27% 10-YR Yield: 4.39%

What Happened?

Last week, markets gained a bit more clarity on several fronts. Investors were given a fresh read on the economy’s overall health, and while inflation remains a headwind, recent data suggests that growth is holding up better than expected. Solid consumer activity and business conditions hinted that the slowdown many feared may not be as sharp, or as soon, as anticipated.

Earnings season added fuel to the optimism, with several high-profile companies reporting stronger-than-expected results. That helped offset jitters around the Fed and inflation, giving equity markets a reason to hold steady even as rate cut hopes began to cool. Meanwhile, commentary from the recent FOMC meeting made clear that the Fed is in no rush, data will drive decisions, and for now, the resilience of the economy gives them room to stay patient.

Markets also saw a slight increase in visibility into the Trump administration’s trade policy, particularly around tariffs. While nothing is final, the tone of recent negotiations and early outlines of new trade deals gave investors hope that a more coherent plan may be emerging. That sense of direction, however early, was enough to support sentiment.

Fed holds interest rates steady as the central bank weighs impact of Trump tariffs

The Federal Fund Rate remained unchanged at 4.2-4.5% after the most recent FOMC meeting.
The Fed is waiting for more hard evidence from macro economical data that the economy is slowing down before they adjust rates.

The key takeaway – The Federal Reserve wrapped up its latest FOMC meeting today with a familiar move: no move at all. Chair Jerome Powell made it clear that while inflation has eased from its highs, the Fed isn’t ready to pivot until it sees convincing evidence that the economy is cooling in a sustainable way.

So far, that evidence hasn’t shown up. The economy continues to defy gravity, consumer spending is solid, job growth remains strong, and corporate earnings have been surprisingly robust. Powell noted the Fed is looking for “real data, not just hope” before making any changes. In short, resilience is the name of the game right now.

Despite renewed calls from President Donald Trump for an immediate rate cut, the Fed is staying the course. Powell sidestepped the political noise and reiterated that decisions will be driven by economic data, not political influence.

Still, the tone from the Fed did shift slightly. Powell and his colleagues acknowledged they are operating in a period of “heightened caution,” watching for any cracks beneath the surface. One area they’re keeping an eye on is trade policy. While tariff talk is heating up, especially heading into election season, it hasn’t yet made a meaningful dent in the economic data. That could change in the coming months if tensions escalate.

U.S. and U.K. Unveil Framework for Trade Deal

President Trump announced a trade agreement with the U.K., the first since imposing tariffs.
The U.K. says the pact isn’t comprehensive and will focus on reducing tariffs in specific sectors.

The key takeaway – The United States and the United Kingdom have announced a fresh trade agreement, the first since the symbolic “Libation Day” shift in trade policy signaling. While the headlines may sound celebratory, the deal is more handshake than overhaul.

Here’s what’s happened:

1. A 10% base tariff remains in place, so despite some headline relief, the broader cost environment hasn’t meaningfully shifted.

2. UK steel and aluminum receive a carve-out from prior U.S. tariffs, which had stood as a sore point since 2018.

3. The U.S. will reduce its 25% tariff on UK auto imports to 10%, but only for the first 100,000 vehicles annually. After that, the original rate likely returns.

4. In return, the UK will slash tariffs on American beef, dropping from 20% to 0%, and will also lower tariffs on U.S. ethanol.

While this agreement adds a splash of momentum to transatlantic trade relations, it’s worth noting that legal documents have not yet been signed, and negotiations remain ongoing. In typical form, former President Trump weighed in, stating he is “eager to continue talks with other countries” and views this as a potential template for future bilateral discussions.

The bottom line? This deal sets the table but doesn’t serve the full meal. For markets and multinational companies hoping for sweeping clarity on tariffs and supply chains, the wait continues. Still, analysts are reluctant to see any movement toward stability in trade policy as can be seen with markets rebounding post Oval Office announcement.

US services sector expands with hints of rising price pressures

The most recent ISM service report came in much hotter than expectations at 51.6% over 50.4%.
Consumers are still spending despite recession fears, but rising service-sector inflation may keep the Fed cautious and delay the rate cuts markets are hoping for.

The key takeaway – The latest ISM Services Index caught Wall Street off guard this week, rising unexpectedly consensus estimates. Despite a backdrop of looming tariffs and a wave of federal job cuts, the U.S. services sector, the economy’s heavyweight that drives nearly 80% of U.S. GDP, refused to flinch.

What’s most surprising is the context. Markets have been jittery about weakening demand as consumers brace for a potential slowdown. You’d think fears of recession, rising prices, and job insecurity would lead Americans to pull back on discretionary spending, fewer dinners out, spa days deferred, and canceled travel plans. Instead, services activity ticked up, hinting that the U.S. consumer may not be as tapped out, or as spooked, as many analysts feared.

Of course, this doesn’t erase the macro headwinds. The Price Paid component also rose, suggesting inflation in the services space is still sticky. That could complicate the Fed’s path forward. Investors banking on multiple rate cuts this year might want to take a breath, resilience in services means the Fed can afford to stay cautious.

This divergence between soft sentiment and hard data continues to play out across sectors. The consumer might say they’re worried about a recession, but they’re still spending. Employers may be trimming in some areas, but wage growth and job creation haven’t collapsed.been running on hope, this was exactly the kind of headline that can keep the rally alive a little longer.