Charts Worth 1000 Words: April CPI Eases, What’s After May?

U.S. CPI growth in April came in lower than expected, offering markets a sigh of relief — but what happens after May?

The input prices component of the U.S. Manufacturing PMI has risen significantly, signaling rising import costs. Coupled with some U.S. companies passing on costs to consumers, CPI is expected to pick up again from May onwards.

There is mounting evidence suggesting that U.S. CPI is about to rebound:

While China and the U.S. have temporarily suspended retaliatory tariffs, the small-parcel duty exemption has been removed. Chinese e-commerce giants Temu and Shein have significantly raised U.S. prices since April 25. For example, the average price of the top 100 products in the beauty and health category rose 51% compared to before the exemption was removed. Prices for furniture, kitchenware, and toys jumped over 30%, and women’s clothing prices rose nearly 10%.

According to a Dallas Fed survey, the first response from both U.S. manufacturing and service sector companies to tariff shocks is to pass the costs on to consumers.

U.S. households are highly dependent on Chinese goods. In 2024, more than 80% of products such as smartphones, microwaves, bicycles, and athletic shoes used by American households were imported from China. For items like toasters, desk lamps, and comforters, the share exceeds 90%.

Since April 18, the number of container ships departing from China has plummeted, marking the end of the “front-loading” phase. These ships typically take 11 days to reach the U.S., and the average delay in rail and road logistics is about 10 days — meaning that shortages of Chinese goods will likely begin to appear on U.S. store shelves in mid-to-late May.

Even if trade negotiations progress quickly, actual implementation is a lengthy process. Historically, it takes the U.S. an average of 18 months to reach a trade agreement, and as long as 45 months from the start of talks to full implementation of a new trade deal.

Now, let’s turn to some narratives around U.S. equities:

The AI narrative in U.S. stocks remains solid. First-quarter earnings reports show tech giants are maintaining strong capital expenditures (CapEx). The market's forecast for Big Tech CapEx in 2025 has been raised 24% from \$269 billion at the start of the year to \$334 billion. Expectations for 2026 CapEx have also been lifted 26% from \$292 billion to \$366 billion.

The current tech rally driven by AI closely resembles the trajectory of tech stocks during the dot-com bubble. As shown in the chart, using the December 1994 launch of Netscape and the November 2022 debut of ChatGPT as starting points, the price paths are strikingly similar.

If history repeats itself, could tech stocks rise even further?

U.S. returns continue to outperform the rest of the world, with advantages spanning nearly all sectors. According to Goldman Sachs, the S\&P 500’s return on equity (ROE) across sectors consistently leads the MSCI World Index (excluding U.S. stocks). The biggest U.S. strengths are in information technology (22 percentage points higher ROE) and consumer discretionary (20 percentage points higher ROE). However, in sectors such as energy, metals, financials, and utilities, the U.S. holds little to no advantage.

Goldman attributes this gap mainly to two factors: higher EBIT margins for U.S. companies and superior asset turnover ratios, indicating more efficient use of assets.

Within the S\&P 500, information technology and communication services have significantly higher EBIT margins than their global peers. The notable exception is healthcare, where the average EBIT margin for U.S. companies is only 10%, far below the global average of 23%.

While the AI narrative remains intact for now, other sectors are facing headwinds. Trump’s reciprocal tariffs have left U.S. business owners uneasy, leading to sharp declines in confidence indexes and CapEx expectations.

Finally, let’s explore a few more compelling charts:

From 2000 to 2010, China’s export growth was mainly driven by foreign-funded enterprises. After 2010, domestic private enterprises took the lead, reflecting the phased success of China's independent innovation strategy.

India’s stock market has surged in recent years and is now seen as a potential rival to U.S. equities. However, amid global economic uncertainty, Indian companies are not immune. Earnings reports show that Indian IT service firms underperformed expectations in the first quarter, citing weak U.S. demand and tighter client budgets. Mentions of “uncertainty” hit a record high.

The IT sector accounts for 11% of India’s benchmark index — the second-largest sector after financials. As the risk of earnings downgrades rises in the IT industry, it may drag down overall profit expectations for Indian equities. Nomura has already cut its earnings growth forecast for the Nifty 50 from 12–13% to single digits.