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Key Takeaways:

• U.S. stock markets rallied due to a 90-day tariff truce between the U.S. and China.
• Inflation reports showed wholesale prices declined by 0.5% in April.
• Walmart warned of potential price increases on some items due to tariffs.
• A record $2.8 trillion in options contracts are set to expire, possibly increasing market volatility.
• Notable corporate moves are impacting individual stocks, including Vistra Corp.’s acquisition and Charter Communications’ merger with Cox.

Markets Climb on Trade Truce

U.S. stocks continued their ascent on Friday, marking a sustained rally fueled by a temporary easing of trade tensions between the United States and China. The S&P 500 edged up 0.1%, while the Nasdaq Composite advanced 0.2%. The Dow Jones Industrial Average, however, slipped by 74 points, or 0.2%.

Week to date, the S&P 500 is up 4.5%, the Dow has gained 2.6%, and the Nasdaq Composite has surged more than 6%. Both the S&P 500 and Dow closed higher on Thursday, while the Nasdaq saw a slight decline.

Temporary Tariff Truce Boosts Sentiment

The rally follows an agreement earlier in the week between U.S. and Chinese officials on a 90-day truce in tariff measures. This development eased investors’ fears of escalating global trade tensions and potential risks to the economy.

“Thursday was just a continuation of what we’ve seen over the past few days, this sigh of relief in response to the U.S. bringing down tariff rates on China,” said Callie Cox, chief market strategist at Ritholtz Wealth Management. “There’s still this big question about what tariffs could mean for the economy, and right now investors are looking for that center of gravity and assessing the economic damage.”

Inflation Eases

Investor optimism was further bolstered by a soft inflation report. Wholesale prices declined 0.5% in April from the prior month. This follows April’s consumer price index growth of 2.3% over 12 months, the lowest since February 2021.

“At the moment, it seems like moves are driving markets in the absence of any signals coming out of economic data,” Cox noted, highlighting the market’s sensitive reaction to trade developments over hard economic indicators.

Corporate Warnings on Tariffs

Despite positive market trends, some major U.S. companies are expressing concerns about rising costs due to tariffs. Walmart announced it would likely have to raise prices on some items in late May.

“That concern didn’t make its way into markets—that was overshadowed by this tech-led sigh of relief from the tariff news that we got Monday—but there is an undercurrent of anxiety,” Cox commented regarding Walmart’s warning. “We’re getting these little signs of tariff impact that haven’t really overwhelmed investors’ attention yet, but could be indicative of cracks forming underneath the surface.”

Potential Market Volatility Ahead

Market volatility could rise due to a significant amount of options contracts set to expire. Goldman Sachs estimated that more than $2.8 trillion of notional options exposure would expire on Friday, the largest such figure on record for a May trading day.

Notable Stock Movements

Vistra Corp. jumped more than 3% premarket after the independent power company acquired seven natural gas facilities from Lotus Infrastructure Partners for $1.9 billion. The gas plants are located in key markets across the U.S., and the deal is expected to diversify Vistra’s natural gas fleet and add 4% to the company’s earnings before interest, tax, depreciation, and amortization.

Charter Communications saw its stock rise by over 6% in premarket trading after agreeing to merge with rival Cox Communications. The deal values Cox at an enterprise value of $34.5 billion, with the combined company to eventually be known as Cox Communications. Charter CEO Chris Winfrey will continue in his role, while Cox CEO Alex Taylor will become chairman of the new firm.

Meanwhile, pharmaceutical giant Novo Nordisk announced that CEO Lars Fruergaard Jørgensen is stepping down from his position, citing recent market challenges. The company’s shares slipped 5% following the announcement.

Federal Reserve Outlook

According to UBS, the Federal Reserve may have enough soft economic data to consider cutting interest rates in the coming months. “While we believe the U.S. could avoid a full-blown recession this year, slowing growth and a weakening labor market should allow the U.S. central bank to resume cutting interest rates in the coming months,” wrote UBS Global Wealth Management Chief Investment Officer Solita Marcelli. “Our base case is for 100 basis points of further easing starting in September.”

Looking Ahead

As markets navigate the balance between optimistic trends and underlying economic concerns, investors remain watchful of developments in trade policies, corporate earnings, and monetary decisions. The potential for increased volatility looms, especially with the substantial expiration of options contracts and the ongoing impact of tariffs on major corporations.