The U.S. stock market will face a critical moment next week! Investors are closely watching an important signal……
Next week, US stock investors will face a busy week of economic data, and they will pay attention to whether the leading stocks in the US market are shifting from defensive Sectors, which would indicate an increase in investors' risk appetite.
Despite the benchmark S&P 500 Index falling by 3.7% in 2025, the stock market has fluctuated due to concerns over the economic damage caused by Trump's tariffs, but Consumer staples and utility Sectors (often viewed as safe havens in the market) have risen by 5% and 5.6% this year, respectively.
Investors typically seek refuge in these Sectors since the Businesses of these companies are believed to be relatively unaffected by economic slowdowns, and these Stocks often provide strong dividends.
Chuck Carlson, CEO of Horizon Investment Services, stated: 'If the market is in a risk-averse mode, these Sectors will continue to lead the way.'
However, recently, as the US market rebounded from last month's low, Sectors related to optimistic economic sentiment or 'risk appetite,' such as Technology, industrial, and consumer discretionary, have performed well.
A shift in leadership from defensive Sectors to economically sensitive areas or Sectors (such as finance or Energy) 'may indicate that investors are regaining some of the 'animal spirits' regarding the economic outlook,' said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
Luschini stated: 'This would indicate that investors are becoming less cautious.'
Despite data so far this year indicating that the economy is resilient, sentiment surveys and other "soft data" are showing weakness.
Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, stated: "The question all macro investors are struggling to answer is whether this is just a slowdown in sentiment reflected in the defensive tilt of stocks, or if there are more fundamental issues at play?"
A host of economic data set to be released next week will provide investors with a key perspective. The CPI data for April, to be announced next Tuesday (May 13), will offer the latest interpretation of inflation trends, while the retail sales report for April, to be released next Thursday (May 15), will provide the latest window on consumer spending.
Although the economic impact of tariffs remains unclear, there are widespread concerns that import tariffs could drive up prices and slow growth.
Miskin noted that if CPI exceeds expectations and retail sales data falls short of predictions, this could raise concerns about "stagflation"—where economic growth is sluggish while inflation persists, potentially putting pressure on the stock market.
Some investors stated that the Federal Reserve seems to have hinted at such concerns during its meeting this week. On Thursday, the Fed maintained interest rates, indicating that the risks of rising inflation and unemployment have increased.
In addition to the data, more US companies will report quarterly earnings in the coming week, including retail giant Walmart.
On Thursday, US stocks rose after Trump and UK Prime Minister Starmer announced a trade agreement. This is the first agreement since Trump imposed a series of tariffs on trading partners that sparked a global trade war.
After Trump suspended many of the most severe tariffs for 90 days last month, investors will continue to closely monitor the negotiations between the Trump administration and other countries, hoping to reach more agreements. CFRA strategists stated in a report on Wednesday: "Global negotiations are beginning, and there is increasing optimism that an agreement can be reached before the suspension period ends."
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