Updated 06/09/2025

Our Perspective on the Markets Last Week:

Equity markets notched another solid week as the S&P 500 closed above the 6,000 level for the first time since February and the Dow Jones Industrial Average reclaimed its year-to-date gains. The price change of select U.S. indexes for the week was: S&P 500 (1.50%), Dow (1.17%) and the Nasdaq (2.18%). The 10yr. Treasury note yield rose 0.10 percentage points to 4.51%.

Positive developments on trade and encouraging labor market data helped to propel markets higher. The communications and information technology sectors (namely, semiconductor and artificial intelligence-linked companies) were the best performing major S&P 500 sectors, while the consumer staples and utilities sectors lagged. Overall, the broader tone was constructive, with roughly 66% of NYSE listed companies advancing compared to almost 33% declining.

On Thursday, according to reports, President Trump initiated a phone call with President Xi Jinping. It was the first conversation between the two since Trump's accusation that China had violated a temporary trade truce. Trump described the call as “very good” and exclusively focused on trade matters. Ultimately, the 90-minute called showed a willingness to re-engage on trade talks (especially around important rare earth minerals and export controls) with each leader agreeing to visit the other’s nation.

Trump on Friday said members of his administration would meet Chinese officials for another round of trade talks in London this week.

Also on Friday, The May nonfarm payrolls report showed employment expanding by 139K, modestly above consensus forecasts of 126K, but still below April’s revised gains 147K. The unemployment rate held steady at 4.2%, holding its narrow 4.0–4.2% range and indicating a slowing, yet resilient labor market. Average hourly earnings rose 0.4% month-over-month, marking a 3.9% increase year-over-year, supporting the “consumer is still strong” argument, but also contributing to inflation concerns.

On a bit of a negative note, March and April job gains (which is when the trade wars were igniting) were trimmed by 95K, raising caution about trend momentum.

Looking Ahead

The big reports this week will be May’s Consumer Price Index (CPI) and Producer Price Index (PPI). Investors will be closely monitoring the two for clues about the Federal Reserve’s next steps.  Any surprise to the upside could revive rate hike expectations, while continued moderation would provide additional support for the market’s expectation of a September rate cut.

U.S. Treasury Secretary Scott Bessent, Secretary of Commerce Howard Lutnick, Trade Representative Ambassador Jamieson Greer, and Chinese Vice Premier He Lifeng, (along with other U.S. and Chinese officials) will be meeting in London on Monday, June 9, to talk trade.  The talks will be closely monitored given the very recent conversation between Trump and Xi Jinpeng.  The last round of discussions had resulted in a surprise temporary trade truce.

Notable earnings reports will come in from Oracle and Adobe Software during the week.

There will not be any impactful Fed speak during the week as they have entered the quiet period ahead of next week’s meeting.

Apple’s Worldwide Developers Conference (WWDC) 2025 kicks off on Monday and is expected to feature major announcements and a first look at new updates for iOS, iPadOS, macOS, watchOS, tvOS, and visionOS. Apple’s stock price has shed more than -18% YTD.

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Probability of an interest rate change at next FOMC meeting:

DECREASE -25 bps
%
No Change
%
INCREASE +25 bps
%

Current Target Rate is 4.25% - 4.50%

Select Economic Data Releases

*Colored icon denotes a new data release.
Gross Domestic Product

The second look at Q1 2025 GDP showed the economy contracted by -0.2%, slightly better than the initial read of -0.3%.  The final revision of Q4 2024 GDP was raised a tenth of a percent to a 2.4% annualized pace.  Q3 GDP showed the U.S. economy expanded at a frothy 3.1% annual pace in the third quarter, revised up from 2.8%.  Q2 GDP grew at a 3.0% annual pace.  Q1 2024GDP grew at a 1.4% pace due largely to much slower growth in consumer spending.  The final revision of Q4 GDP rose to 3.4%.  U.S. GDP grew at 4.9% annual pace in the third quarter.  Q2 GDP grew at a 2.1% annualized rate but consumer spending turned out to be weaker than originally reported. The growth was driven by robust consumer and business spending.  U.S. GDP increased at a 2.0% growth rate during Q1.  GDP was trimmed again to a 2.6% pace during Q4.  The increase in consumer spending was reduced in the latest estimate to 1% from 1.4% last month and an original 2.1%.  The annual growth rate remained at 2.1% for 2022.

Employment Data

The May nonfarm payrolls report showed employment expanding by 139K, modestly above consensus forecasts (~126k), but still below April’s revised gains (~147k). The unemployment rate held steady at 4.2%, persisting in its narrow 4.0–4.2% range—a clear indicator of a slowing, yet resilient labor market.  The U.S. added 193K jobs in March, but the unemployment rate ticked higher to 4.2%.  U.S. nonfarm payrolls increased by 151K in February and the unemployment rate ticked up to 4.1%.  Nonfarm payrolls grew by 143K in January, a significant drop from the upwardly revised December gains.  Although it was shy of the average monthly gain of 166K observed throughout 2024, the unemployment rate edged down to 4.0%.  The U.S. economy added 307K jobs in December, blowing past analysts' expectations of 160K new jobs. The unemployment rate ticked down to 4.1% from 4.2% and average hourly pay increased at a solid 0.3% rate from November.  U.S. employers added 227K jobs in November, exceeding forecasts of 214K.  Unemployment rose to 4.2% from 4.1%. Relative to October, November’s annual wage growth was unchanged at 4.0%.  

Retail Data

Retail sales rose a scant 0.1% in April, matching the Wall Street forecast as Americans likely reduced their spending in response to tariffs.  Retail sales in the U.S. jumped 1.7% in March as shoppers sought to buy larger ticket items such as cars before tariffs could raise prices.  The February retail sales increase of 0.2% was les than anticipated, but a 1% increase in receipts from the "control group" provided some reassurance that the consumer is still solid.  Retail sales fell in January by -0.9% after consumers took a breather from holiday shopping season and a severe cold snap kept people indoors.  Sales at U.S. retailers advanced a seasonally adjusted 0.4% in December with most parts of the country reporting “strong holiday sales that exceeded expectations,” according to the Federal Reserve’s Beige Book.  For 2024, retail sales grew by 3.0%.  The November retail sales jumped 0.7% on strong new car and truck buying and online shopping.  However, receipts at restaurants dipped by -0.4% from October.  Retail sales for October rose by 0.4% and receipts in September were revised higher to a 0.8% increase.  August retail sales grew by 0.1%.  July retail sales surged 1%, blowing past estimates for a 0.3% rise.  June retail sales were revised lower to -0.2% from the previous month, but that was still better than the forecasted decline of -0.4%. If you remove auto and gas sales from the figure, retail sales rose by 0.8% month-over-month.  Sales at U.S. retailers rose a mere 0.1% in May, suggesting Americans are feeling the weight of lingering inflation and high interest rates.  In addition, April retail sales were revised down to a -0.2% contraction.  

Housing Data

Existing-home sales fell broadly by 0.5% in April to a 4M pace from March.  Meanwhile U.S. new home sales rose 10.9% to a seasonally-adjusted annual rate of 743K in April from a revised 670K.  Construction of new homes (housing starts) rose a scant 1.6% to a 1.36M annual pace in April.  U.S. new home sales rose 8.8% in March to a seasonally adjusted annual rate of 693K units, surpassing economists’ expectations of 668K.  The median sales price declined 1.9% year-over-year to $430,700, suggesting builders are offering more competitive pricing amid higher mortgage rate.  Sales of existing homes also rose in February but remained slightly below the 2024 pace at this time last year. Existing home sales rose 4.2% during the month to a 4.26M pace.  Sales of newly built homes slowed to 657K annual pace in January, from the 671K pace in December.  Building permits in January rose 0.1% above the revised December rate of 1.48M, but was 1.7% below the January 2024 rate of 1.51M.  Pending home sales, which refer to the number of contracts signed to purchase a home, fell 5.5% in December while sales of newly built homes rose to an annual rate of 698K.  Sales of newly built homes in the U.S. rose by almost 6% in November to an annual rate of 664K.  Sales of previously-owned homes rose 4.8% to an eight-month high annual rate of 4.15M in November, as home buyers seized relatively lower mortgage rates.  Existing-home sales rose 3.4% to an annual rate of 3.96M in October but are expected to remain sluggish for the time being.  Sales of existing homes are still struggling while new homes sales remain strong. The annualized rate for sales of existing homes fell -1% to 3.84M in September, a 14-year low, but sales of newly built homes rose by 4.1% month-over-month.  Sales of newly built homes in the U.S. fell -4.7% to an annual rate of 716K in August, from an upwardly revised 751K in the prior month.  Pending-home sales also ticked up in August as a big drop in mortgage rates prompted some home buyers to act.  Construction of new homes rose 9.6% in August to a 1.36M annual pace. Building permits, a sign of future construction, rose 4.9% to a 1.48M rate.  

Leading Indicators

The Conference Board's Leading Economic Index (LEI) fell by 1.0% in April.  The Leading Economic Index (LEI) for the U.S. declined by -0.7% in March to 100.5 (2016=100). The LEI in February fell by -0.2% after an upward revision in January from -0.3% to -0.2%.  The Leading Economic Indicators index rose 0.1% in December 2024 (upwardly revised from an initially estimated decline of 0.1%).  November LEI was revised up +0.4% in November. The LEI declined by -1.3% over the second half of 2024, slightly less than its -1.7% decline over the first half of 2024.  The leading index dropped -0.3% in October, largely because of higher jobless claims, fewer building permits and a decline in manufacturing orders.  The leading indicators of the U.S. economy fell -0.5% in September because of weakness in a few key industries such as housing and manufacturing, but not enough to suggest any sign of major trouble.  The leading indicators for the U.S. economy dropped -0.2% in August, the sixth consecutive decline.  The leading index for the economy fell -0.6% in July, the fifth straight monthly decline.  The leading index for the economy fell again in June (-0.2%) for the fourth month in a row, reflecting a slowdown in U.S. growth since the beginning of the year.  The Conference Board said the index of leading indicators dropped -0.5% in May, “doesn’t currently signal a recession."  The leading indicators for the U.S. economy fell -0.6% in April, pointing to ”serious headwinds to growth.”  The index fell again in March.  The decline was -0.3%.

Inflation

CPI and PPI updates for May will come this week.  Fed's preferred inflation gauge, the core PCE index, showed price increases cooled again in April. The core PCE inflation index rose 2.5% on an annual basis, in line with expectations and lower than the 2.7% seen in March.  The monthly change in prices for the core PCE index was 0.1% in April.  Consumer prices showed only a mild 0.2% increase in April and the annualized rate of change slowed to 2.3%.  Producer inflation showed the largest decline since the pandemic, falling -0.5% in April, largely due to falling egg and gasoline prices and a quirky category that measures certain business profit margins.  Headline PCE inflation was flat month-over-month in March. Year-over-year, the index rose by 2.3%, which is a slowing from the 2.7% in February.  Consumer and producer inflation unexpectedly contracted in March with the CPI falling -0.1% during the month and PPI declining -0.4%.  Headline CPI cooled to 2.4% annualized.  Headline PCE inflation of 0.3% in February was a slightly faster pace than expected.  Core PCE also came in slightly hotter than estimated at 0.4% for the month.  Consumer and producer inflation came in soft for February.  Consumer inflation rose 0.2% (0.3% expected) during the month while producer prices were flat, compared to an expected rise of 0.3%.  In January, the Personal Consumption Expenditures (PCE) price index rose by 0.3% from the previous month. Over the past 12 months, the index increased by 2.5%, slightly down from December's 2.6% rise.  Core PCE registered a 2.6% increase, marking a decrease from December's 2.9%.  The CPI for January indicated a 0.5% month-over-month increase and PPI rose by 0.4%.  Both were hotter-than-expected.  

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