May Flowers

As the final days of May unfold, American consumers are feeling notably more optimistic. After several months of declining sentiment, the latest consumer confidence data showed a strong rebound from an almost five-year low, with the increase largely attributed to easing trade tensions. The improvement was broad-based, with households across income levels reporting greater confidence in their financial outlook. This is a positive sign for the broader economy, as consumer spending is the critical driver of growth.

While the pickup in consumer confidence is encouraging, trade policy took the lion’s share of news headlines this week with two major developments: 1) President Trump announcing a delay in the increase of European Union tariffs from June 1 to July 9 and 2) the U.S. Court of International Trade (USCIT) ruling against the Trump administration’s universal tariff on all imports. Both developments were well received by the capital markets.

The ruling by the USCIT was significant as the court determined that President Trump’s sweeping measures exceeded the executive branch’s authority, emphasizing the need for a more targeted approach to trade enforcement. The case has already been appealed and is likely to end up in the Supreme Court for final ruling. While the initial reaction to the court striking down $220 billion of estimated tariffs was risk-friendly, this is not the end of the Trump trade wars. Even if tariffs are struck down, the Trump administration has options to reimpose tariffs through alternate avenues of executive authority. In the short term, we expect the legal battle to complicate trade negotiations and increase business uncertainty.

Unsurprisingly, the on-again, off-again, nature of President Trump’s tariff policies has led to increased market volatility this year. NVIDIA, arguably the most important stock in recent memory, has been the poster child of volatility. As shown in the chart below, NVIDIA’s stock declined 43% from its January high to its April lows as AI advancements in China have sparked fears of reduced demand for its high-powered and expensive Blackwell chips. Additionally, Concerns that the tech giants (Amazon, Alphabet, Microsoft and Meta) would pull back on their massive AI capex plans are also seen as a reason for the 43% decline. In a turn of events, NVIDIA’s stock has rallied more than 60% since April lows, and is now within ~10% of its all-time high after the big four made clear on their earnings calls there is no intention of pulling back on AI spend this year. According to consensus estimates, the combined capex of the four companies alone is expected to be more than $286 billion this year, up 20% compared to last year, with most of those dollars focused on AI technology and data center infrastructure.