Weekly Market Report: June 6th, 2025

Last week equity markets welcomed a soft inflation print as strengthening the case toward future Fed rate cuts but a significant escalation of conflict in the Middle East on Friday quickly dampened risk appetite globally. WTI oil spiked 13% to $72.98 and UST yields closed lower across the curve. Global equity markets closed lower for the first time in three weeks while emerging markets (0.40%) were up.

Market Anecdotes

• Armed conflict escalated in the Middle East last week as U.S.-Iranian diplomatic efforts failed and Israel launched strikes on Iranian military assets and nuclear infrastructure. Markets responded logically with surging oil prices and a risk-off tone across equity markets.
• Treasury auctions last week saw a relatively healthy 10yr where it traded through pre-auction yield for a fourth consecutive issuance. However, the FT highlighted the notable rise in long-term government bond yields and the weak USD which is back below its early April low.
• Indications of progress with U.S.- China trade talks last week were constructive but garnered a muted market reaction given renewed tariff threats from Trump, strategic tensions with China, and high effective overall tariff rates still in place.
• Bessent indicated in Congressional testimony last week that for the 18 major trading partners currently in negotiations, the deadline for reciprocal tariffs will be pushed out, assuming the U.S. feels negotiations are happening in good faith.
• Economic release highlights last week included a benign May inflation reading alongside improved confidence and sentiment in the NFIB and UofM indices respectively.
• Inflation, growth, and labor market data didn’t change market expectations for next week’s FOMC meeting where ‘wait and see’ is the guidance. Markets are not pricing in any rate cuts until the September meeting (67%), which is effectively a coin toss given how far out it is.
• In a reminder that private equity is no silver bullet to outperformance, the State Street private equity index through year end 2024 is underperforming the S&P 500 over 1-, 3-, 5-, and 10-year periods.

Bullish Asset Allocation Narratives

• Barring any inflation/interest rate surge, growth, employment, and the business cycle look to be simply cooling rather than falling into 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 resilient growth, tariff inflation pressures, and healthy labor markets.
• Upward pressure on U.S. interest rates due to fundamental and technical factors present unique challenges for politicians, investors, and economic growth with wide ranging implications.
• Policy uncertainty leading to negative business and consumer sentiment poses risks to employment (deferred hiring), business capital expenditures, and personal consumption.

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.

Weekly Market Report: May 30th, 2025

Last week equity markets closed higher globally as tariff legal challenges took shape but late week narratives served reminders that tariff volatility is anything but over. The S&P 500 was up 1.9% to close out an impressive May where markets rebounded from volatility in April. Interest rates took a breather last week, falling 10-12 bps across most maturities taking 30yr yields back below 5%.

Market Anecdotes

• U.S. equity market returns relative to developed international markets requires close examination of productivity, regulation, and innovation over the long run with the former clearly outpacing the latter, despite near term performance separation.
• Bond markets continue to monitor U.S. fiscal package negotiations with great interest.
• Equity markets digested the U.S. Court of International Trade ruling which checked Executive branch tariff powers under the auspice of national emergency, but an immediate appeal from administration lawyers produced a temporary stay.
• Another late week tariff announcement saw Trump increase imported steel and aluminum tariffs from 25% to 50%, a protectionist move for the industry but at a higher price consequence.
• Bespoke noted a change in equity market behavior on days where trade/tariffs/trade wars dominate the news cycle which led to notable underperformance during March (-0.45%) and April (-0.89%) but drove notable outperformance during the month of May (+1.34%).
• Recent Fed developments include a read-out from Powell’s visit to the White House – likely bolstered by last week’s SCOTUS decision insulating the Chair and BOG from removal by POTUS and the release of May’s FOMC meeting minutes which reiterated the Fed’s wait and see stance.
• Last week’s economic release highlights included in-line U.S. PCE inflation (2.1%), surging Japanese inflation (3.6%), an upside revision to UofM consumer sentiment, rising jobless claims, and durable goods orders contracting as expected.

Bullish Asset Allocation 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.
• Barring any inflation/interest rate surge, growth, employment, and the business cycle look to be simply cooling rather than the prevailing recession narratives which may ultimately allow the Fed to loosen restrictive monetary policy toward the end of summer/early fall.

Bearish Asset Allocation Narratives

• 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.
• The Fed overstaying restrictive policy due to pipeline inflation, high inflation expectations, and resilient labor market poses risks to growth.

Weekly Market Report: May 9th, 2025

Last weekend’s pause in Chinese tariffs generated enough positive momentum to send equity markets sharply higher for a third week of the last four. The S&P 500 (+5.3%) and growth stocks led the way while developed international (+1.5%) and emerging markets (+3.0%) also closing higher but held back by a strengthening USD. Bond yields continued to slowly grind higher leaving the 10yr UST bond yielding 4.43%. Commodity markets were mixed with WTI oil closing up 2.4% to $62.49 and natural gas (-12.5%) and gold (-4.3%) both off sharply.

Market Anecdotes

• In 28 trading days since April 8th, we have gone from a near miss bear market and surging recession calls to a positive YTD U.S. stock market, now a mere 3% below a new record high.
• Gradually rising UST yields despite cooling growth, inflation, and trade tensions likely has the FOMC and investors wondering if the proposed tax cut package is stirring the bond vigilantes.
• Tax bill details last week included an extension of the 2017 TCJA, four key POTUS priorities, increase in SALT deduction, and temporary, not permanent, provisions.
• As written, the draft cost of proposed tax cuts carry a 10yr cost of $3.8t, which rises to $5.3t if cuts are extended, taking total costs including interest to $4.6t or $6.2t, respectively.
• Moody’s joined S&P and FItch in downgrading the U.S. on Friday afternoon, making the sub-AAA rating on U.S. debt official. Validity and timing of that move is facing ample criticism.
• The China tariff rollback was welcomed by risk markets with open arms. In part due to the fact that approximately 7% of S&P 500 revenues originate from China which, given average operating leverage of 2x, implies that China accounts for approximately 14% of EPS.
• Tariff off ramps have influenced strategist calls for recession across the board including Strategas, Golman Sachs, and BCA Research all reducing their recession calls last week.
• Consumer sentiment fell to 50.8 in May, the second lowest reading in survey history while 1-year inflation expectations rose to 7.3% and 5-10yr expectations hit 4.6%. Retail Sales slowed from March 1.7% level to 0.1% but did show some resiliency.

Bullish Asset Allocation Narratives

• Administration officials, bond markets, and public opinion have and will continue to push for expedient resolutions to trade disputes. Peak tariff panic is in the rearview mirror.
• A brief growth slowdown remains much more likely than sustained stagflation given the man-made nature of the trade crisis and ability to course correct/save face abruptly.
• Swift course correction on tariff policies, possible fiscal stimulus (tax cuts), and likely business friendly deregulation encourages focus on the intermediate term horizon.

Bearish Asset Allocation Narratives

• Uncertainty can translate to deferring new hires and negative consumer sentiment risking declines in employment, capex, and consumption.
• The Fed overstaying restrictive policy due to pipeline inflation, high inflation expectations, and strong labor market poses risks to growth in the event tariff de-escalation happens quickly.
• Fundamental and technical factors in U.S. bond markets (upward pressure on rates) present unique challenges for investors and overall cost of capital implications across the economy.

Weekly Market Report: May 9th, 2025

Last week, markets digested another large dose of trade/tariff headlines, several central bank policy meetings, a relatively light economic calendar, and the last legs of 1Q earnings reports. Global financial markets were relatively calm with welcome indications of tariff de-escalation the driving force. Equity markets closed the week largely unchanged while interest rates, commodities, and the USD all moved higher.

Market Anecdotes

• The equity market bounce of the prior two weeks consolidated slightly last week with the S&P 500 closing down slightly but U.S. equity markets exhibiting some improving breadth. The S&P is now trading back up to 21x, relatively fully priced given the uncertain path forward.
• The FOMC left rates unchanged in the May meeting given resilient employment and inflation concerns. With hard data not yet capitulating, the Fed is in a wait and see mode, but tight policy and tariff driven growth drag may prove problematic after the tariff shock fades.
• Markets have pushed Fed Funds rate cut expectations back to July, now pricing in three 25bps cuts for the remainder of 2025.
• The PBOC took action last week including a 10bps cut to its policy rate and 50bps cut to reserve requirements. The BoE lowered rates by 25bps to 4.25%.
• Markets eagerly anticipating a stand down in the U.S. vs ROW trade/tariff tax negotiations received the first deal narrative, announcing the conceptual framework of a U.S.-U.K. agreement.
• Another tariff indication last week was POTUS signaling that 80% (60%) may be a better tax than 145% on certain Chinese goods imports.
• The S&P 500 earnings calendar is now 90%

Bullish Asset Allocation Narratives

• Administration officials, bond markets, and public opinion have and will continue to push for expedient resolutions to trade disputes. Peak tariff panic is in the rearview mirror.
• A brief growth slowdown remains much more likely than sustained stagflation given the man-made nature of the trade crisis and ability to course correct/save face abruptly.
• Potential for swift course correction on tariff policies, possible fiscal stimulus (tax cuts), and likely business friendly deregulation encourages focus on the intermediate term horizon.

Bearish Asset Allocation Narratives

• Heightened and persistent uncertainty is translating to concerning indications in hiring intentions and negative sentiment risking declines in employment, capex, and consumption.
• The Fed overstaying restrictive policy due to pipeline inflation, high inflation expectations, and strong labor market poses risks to growth in the event tariff de-escalation happens quickly.
• Technical factors in U.S. bond markets (upward pressure on rates) present unique challenges for investors and overall cost of capital implications across the economy.

Weekly Market Report: May 2nd, 2025

Market Anecdotes

• Equity markets continued to rebound from the April tariff tantrum, stringing together nine consecutive positive days bolstered by earnings, labor market strength, and cautious optimism that global trade conflicts are beginning to move toward compromise.
• U.S. – China trade remained under a spotlight last week, moving from a stonewall response from China to reciprocal gestures as each exempted similar amounts of imports.
• One of the initial reverberations from the trade wars include U.S. Q1 GDP contracting 0.3% – vulnerable but not collapsing. The print was largely due to net exports detracting 4.83% but uncertainty also saw personal consumption fall to 1.8% from 4.0%.
• Another trade war ripple effect was evident in April new export orders which plunged to 43.1, a level associated with recessions and Trump 1.0 trade war.
• Bond market characteristics remain a key focus with modest credit spreads, a relatively friendly corporate bond maturity profile, and technical forces in treasuries all under close watch.
• Q1 earnings reports last week, which included most major technology companies, were encouraging with a blended bottom line at 12.8% and top line at 4.8%.
• Encouraging labor market indications came across last week including monthly payrolls, JOLTS, and ECI reports showing continued resiliency, a pillar of strength for investors and policy makers.

Bullish Asset Allocation Narratives

• Administration officials, bond markets, and public opinion have and will continue to push for expedient resolutions to trade disputes. Peak tariff panic is in the rearview mirror.
• A brief growth slowdown remains much more likely than sustained stagflation given the man-made nature of the trade crisis and ability to course correct/save face abruptly.
• Potential for swift course correction on tariff policies, possible fiscal stimulus (tax cuts), and likely business friendly deregulation encourages focus on the intermediate term horizon.

Bearish Asset Allocation Narratives

• Heightened and persistent uncertainty is translating to concerning indications in hiring intentions and negative sentiment risking declines in employment, capex, and consumption.
• Pressure on risk assets may persist until trade, monetary, and fiscal policy become more clear.
• Technical factors in U.S. bond markets (upward pressure on rates) present unique challenges for investors and overall cost of capital implications across the economy.