Two the Point — Tariff Truce, Steady Data and a Shifting Narrative

U.S. and China trade tensions eased this week with a 90-day tariff suspension, offering markets a breather. Meanwhile, inflation remained well-behaved, and earnings came in stronger than expected, highlighting an economy that’s still holding up, even as policy uncertainty lingers.

Key Insights:

• Tariffs rolled back significantly: U.S. tariffs on Chinese goods dropped to 30% from 145%; China’s on U.S. goods to 10% from 125%. The 90-day truce suggests momentum toward de-escalation.
• April CPI came in softer than expected: Headline inflation rose +0.2% month-over-month and +2.3% year-over-year; Core CPI held at +2.8% y/y. Inflationary pressure from tariffs is likely to appear later this year.
• Earnings surprised to the upside: Q1 S&P 500 earnings are tracking +14% y/y, or +16% ex-Energy, with 4.9% sales growth. Discretionary and Staples were the only sectors to miss.
• Capex paused, buybacks poised to rise: Uncertainty around trade and taxes has delayed investment, freeing up free cash flow for shareholder returns for some companies.
• Labor market remains resilient: Weekly initial jobless claims held at 228,000, while continuing claims edged lower. This remains a key metric to monitor for any early signs of broader labor market weakness.