Weekly Market Report: June 6th, 2025
Last week U.S. equity markets passed the 20% recovery mark, with the S&P 500 closing within 2.5% of the February record high. Constructive May job numbers and indications of the U.S.-Sino trade discussions fed the positive narrative with budget negotiations and reaffirmed Fed ‘wait and see’ approach to monetary policy filled the counter narrative. Bond yields moved higher last week with intermediate (2yr-10yr) maturities increasing double digits, pushing the 10yr back above 4.5% at Friday’s close.
Market Anecdotes
- The Mag 7 world has driven the 20%+ rebound in the S&P 500 since the April 8th low, accounting for a whopping 40% of the move.
- Global long bond yields have been moving higher, likely due to higher cost tariff driven restructuring of global supply chains. However, intermediate term yields and bond volatility have remained rangebound, suggesting fiscal deficit concerns have not yet revealed themselves.
- We have a stark mirror image in the first five months of the year with gold up 24.2%, its best initial five months with data back to 1975, and the USD down 8.4%, the second worst initial five months with data going back to 1967. International equities have benefited tremendously.
- As expected, tariff tax policy in April triggered the largest drop in U.S. merchandise trade on record (-19.8%), a dramatic 45% reduction in the merchandise trade deficit, a surge in Q2 GDP estimates, and a 51% increase in the inflation rate (1.35% to 2.05%).
- The CBO published its estimate of the fiscal impact of the OBB at $2.4t, excluding interest and assuming Congress will allow the tax cuts to expire in 5 years.
- Notable economic reports last week included generally positive labor market data and some mixed data in the form of ISM surveys indicating improving employment but rising prices.
Bullish Asset Allocation Narratives
- Barring any inflation/interest rate surge, growth, employment, and the business cycle look to be simply cooling rather than the prevailing recession narratives.
- A stimulative U.S. budget deal and business friendly deregulation are continuing to take shape in D.C. which should bolster growth dynamics in the U.S. as long as bond markets sign off.
- Trump has demonstrated a finite pain threshold with tariff policy induced angst as administration officials, financial markets, and public opinion press for resolutions to trade disputes and policy uncertainty. While not over, peak tariff panic is likely in the rear view.
Bearish Asset Allocation Narratives
- The Fed may ultimately need to maintain restrictive monetary policy for longer than otherwise necessary due to policy uncertainty, tariff inflation pressure, and a resilient labor market.
- Fundamental and technical factors in U.S. bond markets (upward pressure on rates present unique challenges for investors and economic growth with implications across the economy.
- Policy uncertainty is translating to negative business and consumer sentiment posing risks to employment (deferred hiring), business capital expenditures, and personal consumption.
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