Good morning investors,
Wall Street looks to steady itself today after two straight days of declines. The S&P 500 closed Tuesday down 0.77%, dragged by tariff-driven uncertainty, earnings anxiety, and pre-Fed positioning. The Dow lost nearly 390 points, and the Nasdaq slipped 0.87%. Today’s market action hinges on two things: Powell’s tone and signs of de-escalation in U.S.–China trade talks.
Before the Bell
U.S. stock futures advanced early Wednesday, buoyed by hopes of trade de-escalation and investor anticipation for the Fed’s interest rate decision this afternoon. Dow futures rose 0.6%, while S&P 500 and Nasdaq 100 futures were each up by a similar margin. The mood brightened on headlines that U.S. Treasury Secretary Scott Bessent and trade official Jamieson Greer will meet with Chinese counterparts in Switzerland this week — a sign that diplomacy may return to the table, even if a comprehensive deal remains out of reach. Oil prices climbed on the optimism, while gold dipped. European markets gave back gains, and Asia traded mixed as China’s latest monetary easing appeared mostly priced in.
Fed Day: All Eyes on Powell
The Federal Reserve is expected to hold rates steady at 4.25%–4.50% this afternoon, with the real market-moving event being Jay Powell’s press conference 30 minutes later. There are no new forecasts or dot plots — just tone. The Fed is trying to thread a very tight needle: acknowledging resilient labor markets and stubborn inflation while signaling enough concern over tariffs and lagging data to keep cuts on the table.
Markets are pricing in no change today and just a 33% chance of a cut in June. I’m more constructive — I still believe there’s a better-than-50% chance we see the first cut in June, especially with the Fed given political and economic cover by the 90-day tariff pause. If Powell leans too hawkish, expect volatility. But if he strikes a cautious, open-ended tone, markets may rally.
Bitcoin Sends a Message
Bitcoin is trading back above $94,000, reclaiming its April 2 level — the day the Trump tariffs were first announced. This is significant. Risk markets have been desperate for a signal amid conflicting macro inputs, and Bitcoin may be delivering it. I’ve held that we’d test the $80K support and then bounce — and that’s exactly what we’re seeing.
What’s driving it isn’t just crypto enthusiasm. It’s macro rotation. Global liquidity is coming back — and Bitcoin is often the first to reflect it. Gold is surging. The dollar is weakening. And the ECB has already begun cutting. Bitcoin is flagging the next move in equities: higher.
M2 Is Back — And So Is Liquidity
One underappreciated tailwind for markets? The return of M2 money supply growth. M2 — a broad measure of money that includes physical cash, checking and savings deposits, and money market funds — had been shrinking through much of 2023, acting as a brake on financial conditions. That trend has now reversed.
Last week, the Fed added $20.5 billion in Treasury purchases, while China cut its reserve requirement ratio (RRR) by 50bps, releasing about $140 billion into its banking system. These actions have begun to lift global M2. And when M2 rises, it supports risk assets. It increases available credit, softens borrowing costs, and encourages capital deployment across equity markets. In short: more money is moving again — and markets are responding.
AMD: AI Gains, China Pain
AMD reported Q1 earnings that beat expectations, with adjusted EPS of $0.96 vs. $0.94 expected and revenue of $7.44B topping consensus. Its data center segment surged 57% year-on-year to $3.7B, driven by demand for EPYC CPUs and Instinct GPUs powering next-gen AI models.
However, the export controls on AI chips to China are beginning to bite. AMD expects a $700M revenue hit in Q2 and up to $1.5B for the full year. Still, CEO Lisa Su struck a confident tone, noting that demand from enterprise and hyperscale customers remains strong and that AI growth more than offsets geopolitical friction. I maintain AMD is a long-term AI infrastructure winner, second only to Nvidia in this race.
China Stimulus: The Other Central Bank That Matters
China’s central bank surprised markets this week with a 50bps cut to its reserve requirement ratio (RRR), releasing about $140B in liquidity. This follows an earlier cut to its 7-day repo rate and is aimed squarely at supporting growth amid rising trade tensions with the U.S.
With retaliatory tariffs already in place and talks with U.S. officials imminent, China’s move is both economic and strategic. It also reinforces a theme we’ve hammered all year: this is a growth scare, not a recession. Global policymakers are blinking, and liquidity injections are returning.
Analyst Recommendations
AMD: Piper Sandler cuts target price to $125 from $140, citing the expected hit from export licensing requirements, but reiterates long-term potential in data center growth.
Electronic Arts: Jefferies raises price target to $200 from $155, highlighting a strong content pipeline and FY2026 bookings growth.
SolarEdge: JPMorgan cuts target to $18 from $20, expecting tariff impacts to weigh more heavily as existing inventory is depleted.
Varonis: JPMorgan lifts target to $53 from $45 after solid Q1 results and improved FY2025 guidance.
Aramark: JPMorgan raises target price to $45 from $43 after in-line earnings and high client retention.
Final Thought
The Fed may be standing still, but markets are already moving. Liquidity is rising. Bitcoin is leading. China is easing. AI earnings are holding up. We don’t need a perfect policy backdrop to go higher — we need a signal.
If Powell doesn’t rock the boat today, I think the next leg higher is in play.
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.