Equity Bulls Push for 5 Days In a Row, May 16, 2025

Stocks are gaining modestly so far today despite weaker-than-expected economic data attempting to halt Wall Street’s latest rally. The bulls are indeed fighting, seeking to extend the winning streak to five-consecutive days as they continue to buy dips in an effort to finish the week with green on the screen. Equities were near their highs of the day until the 10:00 a.m. ET UMich Consumer Sentiment printed its second-worst result in its 79-year history going back to 1946. Households expressed broad-based pessimism, especially considering their futures amidst 1- and 5-year inflation expectations jumping further. Adding to this Friday’s slow market start were building permits and housing starts missing estimates as builders struggle to add supply amidst rising inventories of existing homes, all-time high prices and mortgages north of 7%. Investors are responding to the fresh information by upping their exposures to equities, the greenback and forecast contracts while trimming Treasuries and commodities ex energy. 

Consumer Sentiment Slide Continues

Consumer Sentiment declined for the fourth month in a row in May as households reflected angst regarding elevated prices and worries related to tariff-sparked inflation in the coming months. The fears drove the University of Michigan’s (UMich) headline to 50.8, beneath the median estimate of 53.4 and April’s 52.2. The benchmarks for current conditions and expectations for the future sank to 57.6 and 46.5 from 59.8 and 47.3, below projections of 59.6 and 48. Inflation expectations over 1- and 5-year time horizons climbed from 6.5% and 4.4% to 7.3% and 4.6%.

Rental Apartment Construction Picks Up

Homebuilders were downbeat overall last month but they did ramp up their pace of multifamily rental unit starts by the most in 16 months. The rate of housing starts rose 1.6% month over month to 1.361 million seasonally adjusted annualized units (SAAU), missing the estimate of 1.37 million but rising from 1.339 million in March. Single-family construction declined 2.1% m/m while projects associated with apartment buildings jumped 11.1%. Across geographies, the Northeast and South sported growth rates of 12.9% and 10.9%, while the West and Midwest contracted 16.1% and 10.8% during the period.

Plans for New Projects Decline

Permits on the other hand, saw their pace drop 4.7% m/m to 1.412 million SAAU amidst weakness in both the single- and multi-family asset classes. The former component fell 5.1% while the latter dropped 4.4%. Across regions, 14.3% and 3.4% gains in the Northeast and West weren’t enough to counter the 9.6% and 8.1% declines in the overall larger South and Midwest geographies.  

Imports and Exports Reveal Modest Inflation 

There was a bit of trade related inflation occurring last month as the US saw the costs for imports and exports increase 0.1% m/m. Within imports, however, the non-fuel segment climbed 0.4% m/m, its fastest advance since the 0.6% clip from April of last year. It was offset, however, by a 2.6% decline in fuel imports. For exports, the agricultural segment saw a gain of 0.5%, but it was countered by everything else that increased just 0.1%. Overall, the figures were way higher than estimates of -0.4% for imports and -0.5% for exports. In the preceding month, the results were -0.4% and 0.1%. 

Actions, Not Words

Consumer sentiment data is tricky and since the pandemic we’ve really seen less of a connection between feelings and actions. In the past, the readings were viewed as reliable leading indicators of the most significant component of the economy, household expenditures. But after experiencing the most substantial inflationary surge since the 1980s, folks have generally soured at a degree totally unconnected to overall economic conditions. In consideration of the growing discrepancy between consumer and Treasury market-based insights on price pressure forecasts, there’s a reason to take these soft data readings with several grains of salt. Indeed, retail sales surged in March despite terrible confidence figures. Watch what consumers do, not what they say. 

International Roundup

Japan Economy Weaker than Expected

Japan’s economy underperformed in the first quarter with gross domestic product falling 0.2% quarter over quarter (q/q) compared to the consensus expectation for a 0.1% drop. The result weakened significantly from the 0.6% expansion in the preceding quarter of 2024. Additionally, the annualized contraction of 0.7% missed economists’ forecast for the economy to shrink only 0.2%. GDP had expanded 2.4% in the fourth quarter on an annualized basis. On a positive note, capital expenditures climbed 1.4% q/q, driven in large part by strong corporate earnings, but private spending was flat and GDP faced a headwind from exports falling 0.8% while imports climbed 2.9%. The disappointing first quarter could cause the Bank of Japan to delay an anticipated increase in its key rate, possibly until next year.

But Industry Exceeds Estimates

Japan’s industrial production increased 0.2% in March month over month (m/m), surpassing the consensus expectation for a 1.1% dip. Nevertheless, growth decelerated from February’s 2.3% jump. Additionally, capacity utilization sank 2.4% after a 1.1% drop in February.

Europe’s Trade Surplus Grows

The euro area’s €279.8 billion in goods exports during March was up 13.6% y/y while imports rose €8.8% to €243 billion. The region’s total trade surplus, meanwhile, climbed to €36.8 billion from €22.8 billion in the year-ago period. The country’s largest trade surpluses occurred with the chemicals & related products category and the machinery and vehicles group.

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