Markets Start June Positive Despite US-China Tensions: Stocks to Watch

Despite recent trade tensions between the U.S. and China, increased steel tariffs, and geopolitical events, markets remain relatively calm, suggesting an expectation of a swift resolution to tariff issues and controlled inflation. The market is pricing in two Fed rate cuts in 2025, with the first anticipated in September, as evidenced by the core PCE index rising 2.5% annually in April, below March's 2.7%. AppLovin (APP) and Sea Limited (SE) are highlighted as stocks outperforming the market, poised for further gains, with analysts projecting significant EPS and revenue growth for both companies in 2025.

Analysis

Financial markets are demonstrating notable resilience, largely overlooking recent US-China trade rhetoric, increased steel tariffs, and other geopolitical events, a departure from the heightened sensitivity to tariff news observed in prior months. This stability suggests a market consensus expecting swift resolutions to trade disputes and sustained control over inflation. Supporting this outlook, the core PCE index, the Federal Reserve's preferred inflation gauge, rose 2.5% annually in April, down from 2.7% in March, with a modest 0.1% monthly increase. Similarly, April's Consumer Price Index (CPI) data indicated easing inflation pressures, with a 2.3% year-over-year increase, below estimates and marking the lowest annual rise since February 2021. Despite varied opinions among Fed officials, with some like Neel Kashkari advocating for caution and others like Chris Waller viewing tariff-induced inflation as transitory, market participants are currently pricing in two Fed rate cuts in 2025, with the first anticipated in September. Within this environment, specific equities are exhibiting strong performance; AppLovin (APP) has seen its 2025 full-year EPS estimates revised upwards by 23.02% to $8.39, implying an 85.2% year-over-year growth, while its revenues are projected to climb 24.3% to $5.85 billion. Sea Limited (SE) also shows robust prospects, with analysts raising fiscal 2025 EPS estimates by 1.44% to $4.23, representing a 151.8% growth, and forecasting a 32% revenue jump to $22.37 billion.

Key Decisions for Investors

• The market's current composure amid trade tensions and anticipation of Fed easing in 2025, supported by tame inflation figures like the April Core PCE at 2.5% and CPI at 2.3%, suggests maintaining a constructive outlook on equities.
• Investors could evaluate growth stocks displaying strong fundamentals and upward estimate revisions, such as AppLovin (APP), with projected 2025 EPS growth of 85.2% and a 23.02% increase in consensus estimates, and Sea Limited (SE), with projected 2025 EPS growth of 151.8%.
• Closely monitor upcoming inflation data releases and Federal Reserve communications for any deviation from the anticipated disinflationary trend or a more hawkish policy stance, as these could significantly impact the prevailing bullish market sentiment.
• Recognize that the market's current resilience to trade disputes is significantly based on expectations of rapid resolutions; therefore, prepare for potential reintroduction of market volatility if trade tensions escalate or become protracted.