Monday Takeaways: What to Watch in This V-Shaped Recovery

Shah Gilani|May 5, 2025

The bull market is back on track – but key resistance levels will determine if this recovery has legs…

After erasing all Liberation Day losses, the S&P has finally broken out of its downtrend, pushing above both the 50-day moving average and critical resistance.

Oil prices are collapsing as Saudi Arabia floods the market – a potential inflation killer that could accelerate the Fed’s rate cut timeline.

Meanwhile, corporate America is delivering the goods:

• 76% of reporting companies beat earnings estimates
• Revenue beats running at 62% – slightly below historical averages but still positive
• Earnings coming in 8.6% above estimates – significantly higher than the one-year average of 6.1%

Wednesday’s Fed meeting will be the next major catalyst, with markets hoping Powell acknowledges cooling inflation pressures.

Do do we buy this breakout or prepare for the next leg down?

Click on the image below to find out what this rally needs to keep going.

Transcript

Hey, everybody. Shah Gilani here with your Monday Takeaways.

First, we have to talk about the run the market has had. As far as the S&P goes, nine-day winning streak, that is fantastic.

The bottom line there, the takeaway is we have made back all of the losses since Liberation Day. Yes. The market tumbled on Liberation Day, and now we know that’s behind us. So let’s take a look at how that appears in terms of the charts.

Here’s the S&P 500. Here’s the rally, and then here’s the ugly slide back down. And then, of course, we’ve got all the tariff tumult starting here. Not so pretty. Really ugly. Pretty Friday. And then here we are, broken back out north of this downtrending channel by a healthy margin and above the 50-day and pretty much just about made up everything since Liberation Day.

So that’s a pretty good-looking chart. Question is, where do we go from here? But takeaway from last week, from the last nine-day run, is stocks just look like they want to go up. It doesn’t mean they’re going to continue to go up, but when stocks look like they want to go up, they generally do.

What makes stocks go up? How about good earnings? Because 72% of S&P 500 companies have reported as of Friday. Now here’s some interesting stats on that as we look at the S&P 500 here.

You’re seeing a lot of this is also earnings. It’s not just will Trump walk back more on the tariffs? Will we have a deal somewhere? He’s promised that maybe even this week we could see a deal, even though Secretary Bessin says we’ll more likely see a framework than a deal because there’s a lot to work out.

And if the market likes that, then they might not get something this week. But if they don’t, then they might get it next week or the week after. The idea is they think something good is coming. We’re going to have some resolution and markets like that.

But earnings have been great in the first quarter. How good? 72% of S&P 500 companies have reported as of Friday.

76% beat analysts’ estimates on their earnings. That’s pretty good. That’s right in line with historical averages.

The five-year average is 77%. The one-year average, 77%. So we’re at 76%, slightly under that, but better than the ten-year average, which is 75% beating. So pretty darn good.

What’s a lot better than good is the percentage by which they beat earnings.

They beat by an average of 8.6%. So earnings came in on average for the reporting companies so far 8.6% better than analyst estimates. Now the one-year average is 6.1% better than estimates.

The ten-year average is 6.9% better. So this quarter, we had companies beat by 8.6%.

That’s pretty robust.

Takeaway there is earnings are so good that the markets deserve to go up on good earnings.

Revenue was good too. So as far as beating analyst estimates for revenue of the reporting companies so far, 62% have beaten analyst estimates for revenue.

The average one year is 61%. The average five year, 69%. Average ten year, 64%. So at 62%, we’re kind of a little bit below maybe the five year for sure, about 69%, a little bit below the ten year at 64%, but still not too bad.

So as far as revenue and earnings go, pretty good. The only takeaway I have for you there is we have plenty more companies to report, but is the good news behind us? Because everybody expected the first quarter to be good because a lot of buying happened in the first quarter. A lot of selling happened in the first quarter as people stepped up to make purchases before tariffs were implemented.

So first quarter looked like it was going to be good all along and has been good as far as earnings. So the takeaway from there is, is it going to continue to be good, or is the best of 2025 maybe behind us already? That’s going to be the question going forward. The only bad news really in the first quarter was the GDP number coming in at -0.3% on an annualized basis, but that might get revised.

There’s two more revisions on that. We could end up being on the plus side, which would be very healthy for markets.

This week, we have the Fed meeting on Wednesday. That’s when we get the statement, the Q&A, and I don’t expect anything other than a hold and maybe some positive news out of the Fed that they see inflation cooling somewhat because it is cooling somewhat. But then again, they have to balance that against the potential for tariff inflation, which they said if they see, when they see, it will likely be transitory, and good luck with that. So another thing that’s going to help prices is oil.

And if I give you a little show of USO here, my proxy for oil, oil prices have been coming down because the Saudis and OPEC Plus had been flooding the market with oil. So increasing their production, increasing oil output across the globe. And guess what? Here’s oil prices falling off of a cliff here, people. So that’s also good for inflation.

That’s not good if you’re long oil, but it’s pretty darn good when you’re thinking about prices of goods and services that include transportation and all the things that oil is part of. That’s good. It’s going to bring prices down and that’s a positive for inflation. So maybe we’ll see a Fed cut maybe in the summer, but I don’t think we’re going to see anything on Wednesday.

More than likely, a hold. It’s going to be interesting to see what they say about the tariffs. Now last thing I’m going to leave you with is Friday, we saw the end of the $800 exemption, which has been around for about a hundred years. And that exemption is for $800, a limit of $800 coming into this country on goods that don’t get tariffed.

So if you’re importing something and its value is less than $800, you don’t have to pay any tariffs. Well, President Trump ended that. And starting now, anything that’s coming in under $800 is going to be taxed.

If it’s coming in from Hong Kong, from China, it’s going to be taxed, tariffed at 145%.

What is that going to do to goods and services that are inexpensive that we get from overseas, especially from China?

None of this tariff tax has been passed along yet. Very little of it has been passed along, and it’s really just starting to hit now. So if we don’t see deals, we don’t get deals, we don’t have multiple deals across the board, we’re going to start to see the impact. And oil falling off a cliff isn’t going to help because we’re going to see prices start to move up, whether it’s going to be a transitory move higher as the Federal Reserve has said they expect or whether there’s some stickiness to the inflation. And believe me, there will be a lot of stickiness to it if we don’t get deals. This nice move here may give way.

So investors are eagerly watching what prices are going to do as these tariffs start to work their way through into consumer product pricing, and that’s going to be, I think, a problem.

So biggest takeaway from the first quarter is, yes, great first quarter. Numbers were great. Economic numbers were good. Unemployment’s still 4.2%.

Wage growth’s still good. Slowing, by the way, but still good. So all good. We had good labor numbers on Friday.

So we’re seeing jobs still being created, better than expected job creation, 177,000 versus, I think, the estimate was for 130,000 on that report. So pretty good stuff so far. I just wonder. The takeaway for me is great stuff, but have we just shot our best shot, and are things going to slow down?

Analysts are starting to knock down earnings estimates for Q2. They’ve been doing it now for a couple of weeks. So the numbers that we’ve seen are good, but that means they’re going to knock them down going all the way into the end of the second quarter right up to reporting time. The positive there is if they knock them down enough, it’s easier for companies to beat.

And then you get the market moving higher. So a lot of stuff to take away from what’s going on. And I have to make a comment on it because it’s a big deal.

Warren Buffett at his annual meeting in Omaha decided that it was time to throw in the towel. He is going to retire, and he’s going to stay through the end of the year, and then that’s it for him. What a heck of a run. So that’s not a takeaway.

That’s just a fact. But there is a takeaway from Warren Buffett. Berkshire Hathaway has been selling stocks for ten straight quarters. They’re sitting on a mountain of cash. Buffett has been selling stocks for ten straight quarters.

Now there’s something to be said about that. So the takeaway there is he is either wrong or he’s very right. Doesn’t matter. Right now, it looks like he is probably middle of the ground.

If we backtrack here and we backtrack here and then, oh, there was a reason he’s been selling stuff. If we continue and consolidate here and move higher, then he’s made a mistake selling a lot of stuff. So that’s it for today. I’ll catch you guys next week.

It’s going to be an interesting week out there. It always is. Cheers, everybody.