Equities
The S&P 500 returned +2.9% to complete a stunning rebound and recover all losses since “Liberation Day” (April 2). News of increased diplomacy with China on trade, and a jobs report that showed a labor market that is cooling but resilient, calmed markets. While the GDP report showed that the economy contracted in the first quarter, other data showed cooling inflation and continued consumer spending. Strong earnings from Microsoft and Meta also eased market fears. Communication services (+4.2%) and technology (+4.0%) were the best performing sectors in the S&P500; energy (-0.6%) was the only sector in the red. EAFE markets returned 3.2%, and EM markets returned +3.4%, again based on trade deal optimism.
From a valuation perspective, only U.S. large caps trade above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +1.6. The NASDAQ is at +0.7. For the next 12 months, EPS growth for S&P 500 is expected to be 7.7% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 14.1% (vs. 10.7% annualized over the last 20 years). Equities across market caps in the U.S. and in non-U.S. developed and emerging markets trade at or above their 20-year averages based on forward P/E ratios.
Fixed Income
Investment grade fixed income sectors had mixed returns as yields rose across the curve. Municipals returned +0.8%, U.S. AGG returned -0.3% and U.S. IG returned -0.4%. HY bond returned +0.3% as spreads compressed 8bps while bank loans returned +0.3%. EM debt returned -0.4% as the U.S. dollar rose 0.6%.
Rates
Rates rose across the curve as fears about the impact of tariffs on the economy eased and traders dialed back slightly bets on rate cuts. The recession-watch 3M-10Y spread widened 6bps though remains negative again at -2. The 2Y-10Y spread was unchanged at +48. Rates rose in other developed markets as well other than in Japan. The BTP-Bund spread is at 1.10%. 5-year breakeven inflation expectations fell 1bp to 2.33% (vs. low of 1.88% on Sept. 10); 10-year breakeven inflation expectations were unchanged at 2.27% (vs. recent low of 2.03% on Sept. 10); the 10Y real yield rose 7bps to 2.04%. The market now expects three cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.5% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index rose 0.6%. The commodities complex fell 3.1%, while energy prices fell 5.1% for the week. Brent prices fell 8.3% to $61/bbl amid news of an OPEC supply hike. U.S. natural gas prices jumped 23.6% on expectations that the OPEC supply hike will cut U.S. oil production and associated natural gas output. Forecasts for warmer weather, meanwhile, are expected to boost demand. European gas rose 2.1%.
Market monitors
Volatility fell for equities and for bonds (VIX = 23, MOVE = 101); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) remained negative at -38.
Weekly Commentary
Investment Commentary – May 5, 2025
Stuart Katz
Equities
The S&P 500 returned +2.9% to complete a stunning rebound and recover all losses since “Liberation Day” (April 2). News of increased diplomacy with China on trade, and a jobs report that showed a labor market that is cooling but resilient, calmed markets. While the GDP report showed that the economy contracted in the first quarter, other data showed cooling inflation and continued consumer spending. Strong earnings from Microsoft and Meta also eased market fears. Communication services (+4.2%) and technology (+4.0%) were the best performing sectors in the S&P500; energy (-0.6%) was the only sector in the red. EAFE markets returned 3.2%, and EM markets returned +3.4%, again based on trade deal optimism.
From a valuation perspective, only U.S. large caps trade above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +1.6. The NASDAQ is at +0.7. For the next 12 months, EPS growth for S&P 500 is expected to be 7.7% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 14.1% (vs. 10.7% annualized over the last 20 years). Equities across market caps in the U.S. and in non-U.S. developed and emerging markets trade at or above their 20-year averages based on forward P/E ratios.
Fixed Income
Investment grade fixed income sectors had mixed returns as yields rose across the curve. Municipals returned +0.8%, U.S. AGG returned -0.3% and U.S. IG returned -0.4%. HY bond returned +0.3% as spreads compressed 8bps while bank loans returned +0.3%. EM debt returned -0.4% as the U.S. dollar rose 0.6%.
Rates
Rates rose across the curve as fears about the impact of tariffs on the economy eased and traders dialed back slightly bets on rate cuts. The recession-watch 3M-10Y spread widened 6bps though remains negative again at -2. The 2Y-10Y spread was unchanged at +48. Rates rose in other developed markets as well other than in Japan. The BTP-Bund spread is at 1.10%. 5-year breakeven inflation expectations fell 1bp to 2.33% (vs. low of 1.88% on Sept. 10); 10-year breakeven inflation expectations were unchanged at 2.27% (vs. recent low of 2.03% on Sept. 10); the 10Y real yield rose 7bps to 2.04%. The market now expects three cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.5% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index rose 0.6%. The commodities complex fell 3.1%, while energy prices fell 5.1% for the week. Brent prices fell 8.3% to $61/bbl amid news of an OPEC supply hike. U.S. natural gas prices jumped 23.6% on expectations that the OPEC supply hike will cut U.S. oil production and associated natural gas output. Forecasts for warmer weather, meanwhile, are expected to boost demand. European gas rose 2.1%.
Market monitors
Volatility fell for equities and for bonds (VIX = 23, MOVE = 101); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) remained negative at -38.
Disclosure and Source
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