Markets Gain Ground Amid Trade Progress and Economic Data — But Will the Optimism Hold?

Markets welcomed a wave of optimism last week, buoyed by promising developments in international trade policy and the release of encouraging economic data. These tailwinds pushed major indices, including the S&P 500, back into positive territory for 2025, providing investors with a moment of reassurance after months of uncertainty.

Trade Talks Offer Temporary Relief

Central to last week’s rally was a significant breakthrough in U.S.-China trade negotiations. Following discussions in Switzerland, both nations agreed to reduce tariffs for a 90-day period to allow time for broader trade agreements to be finalised.

• The U.S. lowered its tariff rate on most Chinese imports to 30%, which includes a 20% surcharge linked to anti-fentanyl efforts.
• China responded by reducing tariffs on most U.S. imports to 10% and easing non-tariff barriers, particularly on critical resources like rare-earth minerals.

This détente follows a sharp escalation in April when the U.S. imposed a sweeping 145% tariff on Chinese goods, prompting a 125% retaliatory measure from Beijing. Markets responded favourably to the easing of tensions, with stock prices rising and interest rates edging up.

Tech Sector Bolstered by Policy Shift

Further lifting investor sentiment was news from Washington indicating a relaxation of export controls on AI-related semiconductor technology. The move is aimed at facilitating trade agreements between U.S. tech firms and international partners, with a particular spotlight on a new deal between NVIDIA and Saudi Arabia. The announcement provided a notable boost to technology stocks, reinforcing the sector’s role as a key market driver.

Data Grounds Market Sentiment in Reality

While trade developments stole headlines, economic fundamentals also played a role in stabilising markets. Hard data released during the week suggested that inflation remains largely under control, despite earlier surveys pointing to a dip in consumer and business confidence.

The recent softening in sentiment indicators has not yet translated into serious economic deterioration. Indeed, the current trade-policy environment, while still evolving, appears to be less disruptive than initially feared. Tariffs, now trending toward an average range of 10%–15% in the U.S., are consistent with economists’ base-case forecasts. Although this level of protectionism is expected to place mild upward pressure on prices and modestly slow growth, it is far from recession-inducing.

Caution Remains the Watchword

Despite the positive tone, markets remain vulnerable to sudden shifts. With negotiations expected to continue for several months, periodic volatility is likely. Analysts are advising investors to maintain a diversified portfolio and review asset allocations. Current guidance favours overweighting equities, particularly U.S. large- and mid-cap stocks, over bonds.

Our Perspective

From a Cork-based vantage point, these international developments may seem distant, but their implications are very real for Irish exporters, tech investors, and businesses integrated into global supply chains. The U.S.-China relationship, given its scale and influence, sets the tone for global trade sentiment — and thus affects capital flows, market pricing, and business confidence worldwide.

The truce, while temporary, signals a recognition on both sides that runaway tariffs are economically unsustainable. This pause offers a window for more meaningful dialogue — and for markets, it’s a timely reprieve.

While trade-related uncertainty continues to influence consumer and business behaviour—and is likely to trigger occasional bouts of market volatility—there are signs that the worst of the policy unpredictability may be behind us. Although tariffs remain elevated compared to the beginning of the year, recent reductions have eased fears of a deep economic downturn. Current trends suggest that U.S. tariffs are stabilising toward a base-case average of 10% to 15%. This level, while still impactful, is expected to result in only a temporary uptick in inflation and a modest slowing in economic growth—though the overall outlook remains broadly positive for 2025.

Economic Data Offers Reassurance Despite Lingering Trade Uncertainty

Despite the persistent noise around global trade policy, recent economic data has helped steady investor nerves. While trade-related uncertainty continues to cloud consumer sentiment and complicate corporate decision-making, the tangible impact on key economic indicators remains relatively contained—at least for now.

Markets drew particular comfort from last week’s trio of hard data releases—covering inflation, the labour market, and retail sales—which collectively pointed to a more stable underlying economic environment than many had feared.

Inflation Moderates Further

Headline inflation, as measured by the U.S. Consumer Price Index (CPI), rose by just 0.2% in April, with the bulk of the increase driven by shelter costs. On a year-over-year basis, CPI rose by 2.3%, easing from the 2.4% rate recorded in March. This marks the lowest annual rise since February 2021, indicating that inflationary pressures are gradually subsiding.

The Core CPI, which excludes the more volatile food and energy categories, also posted a 0.2% monthly increase. Over the past 12 months, core inflation held steady at 2.8%. Both headline and core readings came in slightly below consensus expectations, reinforcing the narrative of a softening inflation trend.

Producer Prices Signal Further Easing Ahead

In a further encouraging sign, the Producer Price Index (PPI)—a key measure of wholesale inflation that often foreshadows consumer pricing trends—declined more sharply than anticipated. Headline PPI fell by 0.5% in April, while the core measure dropped 0.4%. Over the year, headline PPI rose by 2.4% and core PPI by 3.1%, both lower than the prior month’s figures.

AllAboutCork Analysis

While sentiment surveys continue to show that trade tensions are dampening consumer confidence and complicating business planning, the hard numbers tell a more reassuring story. Inflation is moderating, price pressures in the production pipeline are easing, and the economy remains resilient. For investors and businesses—especially those with exposure to international trade—this balance between soft sentiment and strong fundamentals offers a compelling reason to remain cautiously optimistic heading into the second half of 2025.

Retail Sales Underwhelm Despite Upward Revision

Retail sales rose by a modest 0.1% in April—below the consensus forecast of 0.3%. However, there was a silver lining: March’s retail growth was revised up from 1.4% to a stronger 1.7%, signalling more robust consumer activity earlier in the year than previously believed.

The retail sales control group—which strips out volatile components such as fuel, motor vehicles, and building materials—declined by 0.2% for the month. This core reading, which feeds directly into GDP calculations, came in below expectations and suggests underlying consumer demand may be softening.

Labour Market Still Resilient

Initial jobless claims came in at 229,000, matching expectations and remaining broadly in line with recent trends. Continuing claims also showed little movement, indicating that the job market, while no longer surging, remains on stable footing. Steady employment conditions continue to provide some insulation against broader economic headwinds.

Consumer Confidence: A Cautionary Signal

While the “hard” data around retail and employment paints a picture of resilience, “soft” data—such as consumer sentiment—are flashing warning signs.

The University of Michigan’s widely followed consumer sentiment index has fallen nearly 30% since the start of the year, driven by inflation concerns and heightened trade-policy uncertainty. The preliminary reading for May edged slightly lower again, landing at 50.8—the lowest level recorded since June 2022.

Notably, most consumer surveys were conducted before the announcement of a temporary pause in tariffs between the U.S. and China. As such, it’s too early to tell whether that diplomatic development will help reverse the decline in sentiment.

Staying the Course: A Smart Strategy for Goal-Oriented Investors

Amid market swings, persistent inflation, and political uncertainty, investors face a turbulent landscape—but one where opportunity still exists for those who remain disciplined.

Markets Prove Resilient After Brush With Bear Territory

U.S. large-cap equities have made a dramatic recovery in 2025. After nearly falling into bear-market territory with a 19% decline from February’s peak to mid-April’s trough, stocks rebounded sharply and are now back in positive territory for the year.

This swift reversal highlights a key truth: attempting to time markets often means missing out on the best days. Investors who held their ground during April’s turbulence are now seeing the benefits.

Meanwhile, globally diversified portfolios have fared better than U.S.-only stock portfolios in 2025, bolstered by strong bond returns and solid performance from international equities—underscoring the value of diversification.

Policy and Inflation Risks Remain

Looking ahead, investors will need to navigate ongoing uncertainty, particularly around trade and tax policy. While tariffs are unlikely to return to early-2024 levels, they remain elevated, contributing to sticky inflation and a softening economic outlook.

Tax reform discussions are also underway in Washington, as the 2017 Tax Cuts and Jobs Act nears expiration. As fiscal priorities shift and political negotiations intensify, policy-driven volatility is likely to persist.

What Investors Can Control

In times like these, goal-oriented investors should anchor their strategies around what they can control: risk, diversification, time horizon, and rebalancing.

• Diversify globally and across asset classes: Include U.S. and international stocks, a mix of large- and mid-cap companies, various sectors and styles, and fixed income with varied maturity and credit profiles.
• Stay aligned with your goals: Rebalance regularly to stay on track, especially after sharp market moves.
• Overweight U.S. large- and mid-cap equities: These may offer resilience and upside potential given the relative strength of the U.S. economy.
• Add quality and duration in bonds: As the 10-year Treasury yield approaches the 4%–4.5% range, intermediate- and long-term bonds may offer better total return potential with less reinvestment risk.

AllAboutCork Insight

For investors in Cork and beyond, the message is clear: Don’t let short-term noise derail long-term plans. By focusing on disciplined allocation, thoughtful diversification, and regular rebalancing, investors can continue to pursue meaningful returns—even in an unpredictable year like 2025.