Week ending May 16th, 2025
From Wall Street to Main Street
Highlights from the past week
PATIENCE IS REWARDED!
Markets are now back to break even on the year!!
Market / Macro Economic Summary This past week, positive news regarding U.S.-China trade relations and developments within the tech sector provided a welcome boost to stock markets, pushing the S&P 500 into positive territory for the year. Despite some earlier soft data reflecting concerns, recent hard economic data suggests that the impact of trade policy uncertainty on inflation and the overall economy has remained limited thus far. With peak tariff uncertainty seemingly behind us and a base-case scenario of average U.S. tariffs settling around 10%-15%, a temporary rise in inflation and moderate growth is anticipated. However, expectations are building for growth-supportive policies later in the year to mitigate recessionary risks. My focus on current allocations remain in favor of overweighting position in stocks compared to bonds, with a particular emphasis on U.S. large- and mid-cap equities. In other trade-related developments, the U.S. administration also last week announced plans to ease trade restrictions related to artificial-intelligence chips, which helps enable trade agreements between U.S. tech companies and other countries. This news, alongside the announced deal between NVIDIA/AMD and Saudi Arabia, further improved investor sentiment last week and provided an extra boost to tech-oriented segments of the market, in particular. On the year, the Dow Jones Industrial Average is up 0.3%, the S&P 500 is up 1.4% while the tech heavy Nasdaq has come back but remains just 0.5% negative on the year. Company Specific / Micro Economic Summary Cisco Systems Inc. (CSCO) Shares were flat as the technology name reported third-quarter earnings and revenue for fiscal year 2025 that surpassed analysts' expectations. The company's adjusted earnings per share reached $0.96, exceeding the predicted $0.92, while revenue came in at $14.15 billion, above the expected $14.08 billion. This represents an 11% increase in revenue compared to the $12.7 billion reported in the same quarter last year. Net income also saw a rise, reaching $2.49 billion, or $0.62 per share, up from $1.89 billion, or $0.46 per share, year-over-year. Despite the positive results, CEO Chuck Robbins acknowledged the uncertain macroeconomic environment during the analyst conference call. Guidance for the upcoming quarter is expected to be impacted by President Donald Trump’s sweeping tariffs on goods imported into the U.S. That includes 30% for China and 25% for Canada and Mexico, Robbins said. The company didn’t see broad purchasing before the enactment of tariffs during the quarter. “We haven’t seen any meaningful change in their purchasing, and so we haven’t seen any customers really fundamentally slowing down,” Robbins said. CoreWeave (CRWV) In its first earnings report since going public, AI infrastructure provider exceeded revenue expectations for the first quarter of 2025, reporting $981.6 million against an anticipated $853 million, marking a substantial 420% year-over-year increase. The company also issued optimistic revenue guidance for the second quarter and the full year 2025, projecting $1.06 billion to $1.1 billion and $4.9 billion to $5.1 billion, respectively, driven by new client uptake including a significant five-year deal with OpenAI worth up to $11.9 billion. Despite the strong revenue growth and backlog of $25.9 billion, CoreWeave's net loss widened to $314.6 million due to IPO-related stock compensation, and the stock price saw a decline in extended trading as investors analyzed the company's metrics and substantial planned capital expenditures of $20 billion to $23 billion for the year to support its rapid expansion and power needs for its data centers. Alibaba (BABA) Shares fell roughly 7% as the Chinese online retailer reported a top and bottom-line beat. Alibaba's latest earnings report revealed revenue of 236.5 billion yuan ($32.6 billion), slightly below the expected 237.2 billion yuan, although still representing a 7% year-over-year increase. Net income also fell short of expectations at 12.4 billion yuan, compared to the anticipated 24.7 billion yuan, but was significantly higher year-on-year due to factors like increased operating income and changes in equity investment valuations, offsetting losses from subsidiary disposals. Despite analysts' hopes that AI investments and core e-commerce growth would meet high expectations, the results reflect the impact of macroeconomic volatility and U.S.-China trade tensions on Chinese consumer sentiment. Nevertheless, Alibaba's core Taobao and Tmall group saw a 9% revenue increase, with customer management revenue rising by 12%, and the company is aggressively investing in "instant commerce" and leveraging partnerships like the one with Rednote to boost platform engagement and sales amid government efforts to spur consumption. Walmart (WMT) Shares rose 1% as the world’s largest retailer reported a mixed quarter and said price hikes might be coming in the next month in response to tariffs. Walmart reported quarterly revenue of $165.61 billion, slightly missing the $165.84 billion expected, citing anticipated pressure from higher tariffs despite a recent agreement to lower some duties. However, the retailer exceeded earnings expectations with an adjusted EPS of $0.61 versus the predicted $0.58 and maintained its full-year sales growth forecast of 3% to 4% and adjusted EPS of $2.50 to $2.60. A significant highlight was the company's first profitable quarter for both its U.S. and global e-commerce operations, driven by growth in online advertising and its third-party marketplace. While projecting a net sales increase of 3.5% to 4.5% for the next quarter, Walmart refrained from providing EPS or operating income guidance due to ongoing uncertainty surrounding U.S. tariff policy, with the CFO expressing concerns about eventual price increases for consumers. Parting Thoughts We welcome an opportunity to discuss the above detail and wish you much success in the rest of your week! Regards, Erick J. Palacios, MBA Wealth/Fiduciary Advisor