Good morning investors,
Markets are bouncing back Thursday on news of a breakthrough in US trade policy, just as the Fed reinforced its cautious stance. President Trump confirmed a long-awaited trade deal with the UK — the first since his blanket tariffs were imposed — marking a potential shift from confrontation to negotiation. Add in the rollback of AI chip export curbs and the market tone has turned notably more constructive.
The S&P 500 is building on Wednesday’s gains and looks set to challenge a key resistance level at 5,785 — a line I’m watching closely. If it breaks, we could see momentum accelerate.
Before the Bell
U.S. stock futures advanced Thursday, buoyed by optimism around a potential trade breakthrough with the UK and expectations that recent AI chip export curbs may soon be rolled back. Dow futures rose 0.9%, S&P 500 futures climbed 1.1%, and Nasdaq 100 futures gained 1.4%. Energy and tech led the early gains, with Nvidia and AMD rallying after reports the Trump administration will replace the Biden-era AI chip restrictions with a simplified framework to promote US innovation.
Overnight, Chinese and Hong Kong equities advanced on Beijing’s stimulus moves, while Japan’s Nikkei closed higher thanks to strength in chip stocks. The dollar edged up and gold slipped, as fading trade tension trimmed demand for safe havens.
The Fed Holds, But Risks Are Rising
As expected, the Federal Reserve left rates unchanged on Wednesday, keeping the Fed funds rate in a range of 4.25%–4.50%. Chair Jay Powell struck a patient, data-dependent tone — but with a caveat. He directly acknowledged the stagflationary risk posed by tariffs, saying that if the full set of Trump’s proposed levies go into effect, the Fed sees the potential for a “rise in inflation, a slowdown in economic growth, and an increase in unemployment.”
The Fed now finds itself caught between lagging inflation and a tariff-induced economic slowdown. Powell reiterated the central bank’s need to “wait and see” but didn’t commit to any path on cuts. In practice, that means we are still in a reactive policy stance. Markets are still pricing in up to three rate cuts this year, but that timeline remains fluid.
It’s worth noting that while Powell projected patience, his press conference showed hints of concern. “My gut tells me that uncertainty about the path of the economy is extremely elevated,” he said, pointing to downside risks gaining traction. This was not a dovish pivot — it was strategic hesitation.
I maintain that 5,785 on the S&P 500 is a major level to test. If we clear that resistance cleanly, it would confirm that markets are willing to look through short-term volatility and price in looser conditions ahead.
AI Trade Curbs Repealed? Nvidia and AMD Surge
In a move I flagged earlier this week, the Trump administration is preparing to rescind the complex export curbs on AI chips introduced under Biden. The so-called “AI diffusion rule,” which aimed to limit smuggling to China through third-party countries, will be replaced with a more streamlined system to support US chipmakers.
Nvidia shares jumped nearly 2% premarket and are pushing toward a breakout above $120. AMD also gained 2% and is approaching key resistance at $104. If these levels break, I think both stocks could re-rate higher as policy headwinds fade.
Britain First to Strike US Trade Deal
The US and UK have reportedly reached a deal to roll back some tariffs — the first formal agreement since Trump’s blanket tariff strategy began. Trump called it “a full and comprehensive deal,” noting it’s the first of many to come. The announcement is expected at 10 a.m. ET and marks a potential pivot from tariff escalation to dealmaking.
Markets are viewing this as a signal that the Trump administration may soften its stance and pivot to diplomacy in the months ahead, especially with China trade talks also back on the agenda.
Earnings Spotlight: Disney, Warner Bros, and More
Disney soared Wednesday after beating earnings estimates and posting its fourth consecutive profitable quarter in streaming. The company also unveiled plans for a new resort in Abu Dhabi, lifting shares over 10%. In contrast, Warner Bros. Discovery disappointed with weaker box office and continued cable erosion, missing top-line estimates.
Elsewhere, Tapestry raised guidance on strong Coach sales, Carlyle impressed with record AUM and higher fees, and Beyond Meat withdrew its sales forecast amid poor demand.
Final Thought
The Fed is on hold, but not because the outlook is clear — quite the opposite. Tariff uncertainty, inflation stickiness, and earnings resilience are pulling in different directions. For now, Powell is giving the market time to digest, and the S&P 500 is responding. But 5,785 remains the line in the sand. Break it, and the bulls get a green light.
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.