Weekly Recap:

by Michael P. Reinking, CFA & Eric Criscuolo

Published on 05/30/25

In our April monthly wrap we broke down the volatility in financial markets with the help of lyrics from Billy Joel’s Extremes. In that addition, we walked through the vicious selloff at the start of the month, culminating in the Rose Garden and the subsequent snapback rally which left the S&P 500 only slightly lower in April.  With that in mind, the theme song for May is the 1999 hit “Higher” by Creed. That being said, those lyrics aren’t quite as dynamic and I’m not feeling quite as creative. The question repeatedly asked throughout that song, 8 times to be exact, “Can you take me higher?” was answered with a resounding yes in the month of May. The S&P 500 ended up 6.2% breaking a three-month losing streak and taking the index back to around unchanged YTD. 

The tone around trade generally softened throughout the month with our first trade deal and what appeared to be a détente with China in the middle of the month. In general negotiations seemed to be moving in a much more transactional direction with investors coalescing around the idea that tariffs would end up somewhere around that 10% baseline. However, the overall situation remains fluid as we’ve been reminded over the last couple of days with the legality of tariffs being challenged in the court system and what appears to be a re-escalation of tensions with China again. Much more on that below.

The other dynamic that helped to drive markets higher was earnings season that largely came in better than feared. After this week the earnings are pretty much behind us outside of a couple of stragglers in tech and retail. According to FactSet Earnings Insight 78% of companies in the S&P 500 beat estimates which is about in line with historical averages. There were multiple companies that pulled guidance during the quarter, most of which were consumer facing or those directly impacted by tariffs. However, management teams have done a good job of laying out steps to mitigate some of the challenges which included price increases. In general, tech earnings, including the Nvidia this week, were a positive standout. Also helping tech to outperform this month were the deals announced by President Trump in the Middle East which put a bid back in the AI complex. Throughout the first half of the year earnings estimates have been getting cut but the pace of those declines began to slow in May. As things currently stand analysts are looking for annual EPS growth of 9.4% down from ~14.5% at the start of the year. 

Markets peaked in the middle of the month before starting to consolidate some of the recent gains. Outside of a normal retracement the push higher in global yields was raising some concern following Moody’s debt downgrade, some weak auctions highlighting shifting supply and demand dynamics, growing fiscal deficits and shifting Fed expectations as calls for a recession ratcheted lower. For the month, Treasury yields were up ~25bps across the curve before pulling back this week for reasons we’ll discuss below. However, over a two-month basis the move at the long end is the most notable with 10/30yr yields up 20/30bps respectively while the 2/5yr are about unchanged. See chart of the 2/10 spread below. The USD did bounce slightly during the month of May but remains sharply lower YTD.

Small and mid-cap indices ended up ~5% despite the fact that those companies more reliant upon financing but they are still meaningfully underperforming YTD. The NYSE FANG+ index was the best performing for the month up >10% which was also reflected in the sector level activity within the S&P 500 with info tech, consumer discretionary and comm services all outperforming. Industrials were the other upside standout helped by aerospace and defense stocks, a rebound in airlines and the AI infrastructure related companies. 

Healthcare continued to be a big underperformer as the UnitedHealth investigation weighed on the insurers and President Trump’s Executive Order to lower drug prices weighed on pharmaceutical companies. Energy also continued to underperform as oil prices have not rebounded ahead of an expected production increase by OPEC+ this weekend. The move higher in yields capped REITs which ended around unchanged while other yield-oriented/defensive sectors underperformed. 

I also wanted highlight one of the other factors helping to drive markets higher this month was the drop in volatility. According to Bespoke this was the fastest decline in the VIX from 40 to under 20, happening in just 21 trading days. One could probably make a good argument that the decline from last August’s vol swell was faster, but the VIX didn’t quite close above 40 (semantics). After the deleveraging that occurred in April this helps to bring back in some of those systematic/quantitative flows. There have been four other instances (not including August) where this happened in under 100 days. The S&P 500 closed higher in each of the following 3-, 6- and 12-month periods. We're off to a good start.

This week was holiday shortened but was packed with catalysts. Coming out of the long weekend there were positive developments on both of last week’s pain points and a jump in consumer confidence from the depths of the tariff turmoil which helped major US indices rally >2% recouping most of last week’s losses. In the most recent twist in the long and winding road of tariffs and trade negotiations, over the weekend President Trump walked back last Friday’s threat to increase EU tariffs to 50% after a productive call with EC President von der Leyen to allow more time for negotiations.

The other development helping to push equities higher on Tuesday was a rally in sovereign bonds. In Japan, the ministry of finance reportedly sent a questionnaire to primary brokers, ahead of a June 20th meeting, asking for their views on issuance which raised speculation that it would scale back supply of long duration paper. This sent local yields in the 20-40yr duration down 15-25bps reversing all of last week’s move higher which ultimately bled into Treasury markets. Last week we downplayed the importance of the US 20yr auction and before moving on wanted to highlight that the 2, 5 and 7 year auctions this week have been very strong with indirect bids coming in ahead of recent auctions suggesting there is strong foreign participation quieting some of the recent concern about overseas demand.

Since I’m talking about bonds we can’t move on with at least mentioning comments from JPM’s CEO Jamie Dimon, who earlier today said, “You are going to see a crack in the bond market. It is going to happen.” He did say he didn’t know when but said, “I’m hoping that we change both the trajectory of the debt and the ability of market makers to make markets,” referring to the hope that regulators will reform the Supplementary Leverage Ratio (SLR) for banks.

Trade and tariffs was the big story of the week. On Wednesday evening the Court of International Trade ruled that the tariffs instituted under the International Emergency Economic Powers Act (IEEPA) were illegal. The ruling covers the 10% baseline tariff, the reciprocal tariffs announced in the Rose Garden and the fentanyl-related tariffs put on China/Mexico/Canada. The sectoral tariffs on autos, steel and aluminum (and likely pharmaceuticals, lumber, chips if/when announced), which fall under Section 232, will remain in place. The court noted that, “we do not read IEEPA to delegate an unbounded tariff authority to the President.”

The Justice Department quickly filed with the U.S. Court of Appeals for the Federal Circuit, asking to put the Trade court’s ruling on hold and just as quickly the Supreme Court provided an emergency stay. In a separate case a Federal Court, blocked the US government from collecting tariffs from two toy importers, though the decision is on hold to allow the government to appeal.  This covers only those companies involved in the case.   

The NYSE MAC Desk is now actively tracking US tariff law experts on social media, who seem to be the same experts in infectious disease, industrial manufacturing and logistics, strangely. As trade negotiations seemed to be progressing investors had gotten comfortable with the direction policy was taking which increasingly seemed transactional in nature. For the administration this is at least a bump in the aforementioned long and winding road but probably doesn’t completely upend the agenda, though they will now have to pivot. It is unclear how long the appeals process will take but this will likely extend the period of time we’ll be in trade purgatory. 

The administration can turn to other trade law (Section 122 of U.S. trade law, Section 301 and Section 338 of the Trade Act of 1930 are being cited for those who’d like to do some more reading). However, those tend to be more restrictive, can require an act of Congress or require a formal investigation which will take some time. For the time being officials continue to say that counterparties are still at the negotiating table. 

China relations were back in focus again and continue to be the outlier. Throughout the week there were press reports that the administration would tighten restrictions on technology exports and student visas. For the second Friday in a row President Trump took to Truth Social ahead of the open saying "China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!" China’s Liu Pengyu, responded by saying, “China has repeatedly raised concerns with the US regarding its abuse of export control measures in the semiconductor sector and other related practices.” This afternoon during his press conference with Elon Musk President Trump’s tone wasn’t quite as harsh as his post saying he still hopes to speak with President Xi something that Treasury Secretary Bessent suggested would be necessary to break the gridlock in the “stalled” negotiations late yesterday.

Global Markets - International equities were mixed this week, with Europe mainly higher and Asia/EM mainly lower. For May, equities rode the tailwind of tariff de-escalation to higher levels, though not without some rough seas. President Trump’s threat on May 23 to hit Europe with 50% tariffs caused a brief sell-off in the region, but his reversal a few days later triggered a recovery. The initial threat was driven by a lack of progress in trade negotiations between the US and EU, and that still remains an overhang. This week’s legal back-and-forth adds more uncertainty to an already uncertain environment.

For the month, most indexes were in line to trailing the S&P 500’s 6% climb. The central banks are generally in an easing cycle - the BOE cut rates in May and the ECB is expected to cut in June, although that’s not a certainty. Norges Bank and Riksbank held rates steady.

Commodities - Broad weakness this week but mostly higher in May

The economic data was fairly light this week and didn’t alter the outlook for Fed policy.  Markets are still pricing in a ~95% chance the FOMC leaves rates unchanged in June, level with last week. For the rest of the year, there’s about 50bps of cuts priced in, about even with last week and substantially below a month ago (100bps).

Q1 GDP was revised slightly higher though personal consumption was revised lower (mainly services) offset by a bump up in investment. April’s core PCE index rose 0.1% from March, in line with expectations, and was up 2.5% year-over-year, down from 2.7% last month. The Fed will like the trend lower but it remains above target. Goods remained in deflation (-0.4%) while Services price increases ticked lower (from 3.5% last month to 3.3%).

The jobs data was softer/dovish, but not overly concerning. Weekly jobless claims rose to 240K versus 226K last week and were above the 4-week moving average of 231K. Continuing claims rose to their highest levels since November 2021. The labor market continues to show relative strength, though the Fed will be watching these numbers closely for signs of increasing strain.

Capital Goods orders (non-defense, ex-aircraft orders) fell 1.3% in April after increasing 0.3% in March. It's one of the more volatile pieces of data. Housing data showed a weak market. Retail Inventories excluding Autos rose 0.3% month-over-month in April, in line with March, while wholesale inventories were flat, down from 0.3% in March. Pending Home Sales fell 6.3% in April, while Home prices rose about 4% y.y, though this was March data. 

On the stronger side of things, the Conference Board’s Consumer Confidence Survey rose to 98 in May from 85.7, with inflation expectations moderating. We also saw several regional Fed surveys that improved this month: The Dallas Manufacturing Index improved from -35.8 in April to -15.3 in May. The Richmond Manufacturing Index rose to -9 from -13. The Dallas Services Index improved from -19.4 to -10.1. While not a Fed survey, the ISM’s Chicago PMI for May fell to 40.5 from 44.6 last month.

The legal process related to tariffs will surely get plenty of attention. Otherwise the focus next week will largely be on economic data and central banks with earnings pretty much behind us. The key data in the US will be the ISM Surveys and the labor market data throughout the week. On the international front China PMIs and EU inflation data will be the highlights. South Korea also its election next week. Chair Powell speaks on Monday but there is no Q&A. There are multiple central bank rate decisions including Canada, the ECB and India which are all expected to cut. Only bill auctions in the US, but there is some long duration issuance overseas which could get some attention. Hopefully we get to see a Game 7. Have a great weekend!

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