Top of Mind - Week of June 2, 2025
- May has come and gone, and those who followed the old adage of “sell in May and go away” are off to a rough start. The flagship S&P 500 index posted its strongest monthly gain since November of 2023, shaking off the tariff-induced April sell-off.
- Global equity markets performed well in May, posting solid absolute returns. The Russell 1000 Growth Index led the pack at +8.9%, outpacing the Russell 1000 Value Index at +3.5% and international equities at +4.6%, as measured by the MSCI ACWI Ex USA.
- Fixed income returns were more muted for the month, with the Bloomberg Aggregate Bond Index falling -0.7%. The positive impact from credit spreads tightening throughout May was dampened by the yield curve shifting higher, as Treasury yields beyond 1-year moved up by 20-30 basis points.
- Moving into June, we anticipate that markets will remain volatile as investors focus on the magnitude of the fiscal impact that the “One Big Beautiful Bill” can deliver, as well as possible deregulation, and the looming end of the initial 90-day pause in early July. Geopolitical risk will also be front and center as a near-term negotiated peace between Russia and Ukraine appears to be off the table, given this weekend’s escalation.
Top of Mind - Week of May 26, 2025
- Despite the standing 90-day pause on reciprocal tariffs, duties of 50% on goods imported from the European Union (EU) were announced on Friday, scheduled to take effect on June 1st.
- As trade policy uncertainty has resurfaced for many investors, equity markets have reacted negatively to the announcement; however, the tone has changed since Friday.
- Fast forward through the long weekend, and the June 1st effective date has been pushed back to July 9th to allow time for negotiations after a constructive call between President Trump and EU counterpart Ursula von der Leyen.
- The on-again, off-again nature of the tariffs and corresponding trade deal announcements will likely continue, especially after receiving such a rapid response from the EU in light of Friday’s announcement.
- While trade policy rhetoric will continue, trade headline impact on markets will likely recede as market participants turn their focus on potential changes to tax policy (with the One Big Bill now in the hands of the Senate after passing through the House) and deregulation, both anticipated to ramp up in the second half of this year.
Top of Mind - Week of May 19, 2025
- Moody’s credit rating agency downgraded the creditworthiness of the US Federal Government on Friday, taking the US from AAA (highest possible rating) to Aa1, joining Standard & Poor's (S&P), which downgraded the US in 2011, and Fitch Ratings, whose downgrade was delivered in 2023.
- Rationale provided by each credit rating agency includes the size of the Federal debt burden, continued spending leading to elevated deficits, and, most recently, rising interest payments.
- As Congress is currently working on “One Big Beautiful Bill,” targeted to solidify the 2017 tax cuts and reform Medicaid, it isn’t clear that the bill would improve the fiscal picture, with many pointing out that, as-is, it would actually increase the budget deficit.
- Interest rate markets have taken note of both the latest downgrade and the potential for continued deficit expansion as the 10-year Treasury yield pushed back through 4.5% and the 30-year Treasury yield is back near 5.0% while the US dollar is weakening.
- Last time this dynamic presented itself, the administration announced a 90-day pause on tariffs, and if this dynamic continues, we’d anticipate that policy will change yet again.
Top of Mind - Week of May 12, 2025
- Last week brought the first trade deal in the post “Liberation Day” environment as a new agreement was inked between the United States and the United Kingdom.
- News of the first trade deal was positively received. Still, heading into the weekend, all eyes were focused on the potential outcomes of the US/China trade negotiations taking place in Switzerland.
- Before talks began, the US had a tariff rate of 145% on Chinese goods while China’s rate on US goods was at 125%, essentially freezing trade between the world’s two largest economies.
- The results of the deliberation exceeded market expectations. A 90-day pause was instituted by both countries during which tariffs would be significantly reduced. The US lowered the tariff rate from 145% to 30%, and China lowered its rate from 125% to 10%.
- With a trade deal established with the UK and ongoing negotiations with China seemingly moving in a positive direction, the Eurozone is likely next on the list for trade deal negotiations.
Top of Mind - Week of May 5, 2025
- No interest rate cut is anticipated at this week’s Federal Reserve (Fed) meeting, leaving the policy rate at a target range of 4.25% to 4.50%.
- We anticipate that the Fed will reiterate its wait-and-see approach, pointing to the unknown impact of tariffs on prices and how companies respond.
- Economic data continues to be muddled. Survey data suggests the labor market should be rapidly deteriorating, while the actual data isn’t showing signs of stress, yet.
- Interest rate markets are anticipating that the Fed will cut three times by the end of this year, suggesting the Fed is behind the curve in projecting only two interest rate cuts. However, in a quickly changing environment, interest rate markets and the Fed will be adjusting as trade and labor market dynamics continue to come to the surface.
- With the current backdrop of inflation above the Fed’s 2% price stability target (by nearly any measure you can find), the unknown price impact from tariffs, and a labor market that isn’t showing imminent signs of weakness, the Fed can afford to be patient at this time.
Top of Mind - Week of April 28, 2025
It appears that peak tariff uncertainty is behind us as we’ve moved from the 90-day pause on reciprocal tariffs to the point where more goods are being considered for exemption or have been outright exempted from tariffs by both the US and our trading partners.
- While tariff uncertainty has likely peaked, we anticipate that uncertainty will remain elevated moving forward, as trade deals are complex arrangements and take time to finalize.
So, what could provide a positive catalyst in this environment of elevated uncertainty?
- With mid-term elections next year, we don’t anticipate the Administration having much of an appetite for a policy-induced recession or prolonged weakness in equity and fixed income markets.
- Additional reprieve of announced tariffs or further exemptions would provide the most immediate relief, and beyond trade policy, the potential for lower taxes and decreased regulation stands as positive catalysts.
- However, should these potential positives fail to materialize, risks are skewed to the downside.