The US market: an overview and forecast for May 12. News from the talks between the United States and China will support the bulls

Key Information Drivers

Before the opening of the main session this Monday, the key information driver is the positive results of the trade negotiations between the US and China that took place over the weekend. The parties agreed to reduce tariffs on Chinese goods imported into the US from 145% to 30% for 90 days, while reducing the tariff on US imports into China from 125% to 10%. The agreement will take effect on May 14. The participants in the negotiations expressed interest in maintaining the stability of their relations. After the close of the main session on May 12, a statement by US Treasury Secretary Scott Besant is expected, where details of the dialogue are likely to be revealed.

White House Economic Advisor Kevin Hassett stated that new trade agreements could be concluded with other countries this week. In turn, Japan's Prime Minister Shigeru Ishiba confirmed, according to Reuters, his intention to press the US for the removal of all tariffs. The European Union's stringent regulations, particularly the ban on importing hormone-treated beef, remain a stumbling block in the dialogue with Washington. The details of the negotiation processes, along with the publication of corporate reports, will determine the movement of quotes throughout the day.

Today, the US monthly federal budget report will be released. The consensus predicts a surplus of $256 billion, after a deficit of $160.5 billion. However, these data are unlikely to significantly affect the course of trading.

More than 90% of companies in the S&P 500 have reported quarterly results. Today, before the main session opens, the results of NRG Energy (NRG), Fox Corporation (FOX), Monday.com (MNDY), and Essential Utilities (WTRG) will be published, while after-market reports from Simon Property Group (SPG), Davita (DVA), and Standardaero (SARO) will be released.

Futures on US indices are trading in the positive. A favorable risk balance is forming amid the de-escalation of trade conflicts. Additional signals from officials regarding the progress of negotiations may adjust investor sentiment. We anticipate increased volatility and expect the S&P 500 to move within the range of 5640–5830 points (from -0.4% to +3% relative to the May 9 closing level).

In Focus

• OpenAI is in talks with Microsoft (MSFT) to secure new financing and go public (IPO).

• Eli Lilly (LLY) has published the results of Phase 3 of the SURMOUNT-5 study, indicating that the drug Zepbound (tirzepatide) showed greater efficacy in combating obesity compared to Wegovy (semaglutide).

• The US President plans to sign an executive order reducing the prices of prescription drugs by 30–80%. This news may put pressure on the stocks of pharmaceutical companies during the day.

• A federal court temporarily blocked the transfer of land in Arizona to the mining giant Rio Tinto (RIO) for the construction of a copper mine, supporting the claims of the state's indigenous population.

• Alphabet (GOOGL) will pay Texas nearly $1.4 billion as part of a settlement of two lawsuits accusing the corporation of tracking users' locations and storing biometric data without their consent.

Market Yesterday

On May 9, trading on US stock markets ended slightly negative. The S&P 500 fell by a modest 0.07%, the NASDAQ 100 lost a symbolic 0.01%. The Dow Jones decreased by 0.29%, and the Russell 2000 dropped by 0.16%. Most of the sectors within the broad market index traded in the green zone. The negative territory was occupied by healthcare (XLV: -1.09%), IT companies (XLK: -0.12%), communication industry (XLC: -0.51%), and non-cyclical consumer goods providers (XLP: -0.58%). The "fear index" VIX fell by 2.58%.

The near-zero dynamics were due to expectations for the results of the US-China negotiations held over the weekend in Switzerland. In numerous comments from Federal Reserve officials, the main points generally repeated the statements following the May FOMC meeting. Michael Barr, Vice Chairman for Supervision at the Federal Reserve, noted that the White House's tariff policy will likely cause disruptions in supply chains, accelerate inflation while slowing down the economy, and increase unemployment over the year. Voting FOMC members Richard Williams and Adriana Kugler also forecast a slowdown in GDP growth. Williams also highlighted the risk of higher inflation and unemployment. Richmond Fed President Thomas Barkin pointed to high consumer spending and business investment, suggesting that companies are unlikely to raise prices due to import tariffs. Chicago Fed President Austan Goolsbee said that the US economy continues to fight high inflation, which was caused by the pandemic.

Company News

• Monster Beverage (MNST: +1.4%) reported Q1 EPS in line with market expectations. The company's revenue was weaker than consensus, while the margin exceeded expectations despite unfavorable weather conditions, currency fluctuations, and lower alcohol segment sales. Management noted that retail trends remain strong.

• Cloudflare (NET: +6.5%) reported quarterly revenue and operating profit above consensus. Its guidance for the current quarter matched market expectations, and the annual forecast was unchanged.

• Microchip Technology (MCHP: +12.6%) reported Q4 EPS and revenue that beat forecasts, as did its guidance for the next similar period. Management stated that the company had reached the bottom in revenue, normalizing inventory levels, and that for the first time in three years, the book-to-bill ratio rose above 1. Additionally, there were increases in orders and higher customer engagement.

Technical Picture

The S&P 500 spent last week consolidating. The benchmark was supported by the 50-day moving average. Futures indicate a possible opening on May 12 above the 5750–5800 point range, which we previously identified as strong resistance. If the broad market index holds above the 200-day moving average today, this will indicate a return to a full-fledged "bullish" trend.