Executive Summary
For the month of May, the S&P 500 returned over 6%, its best monthly performance since November 2023. Financial markets have weathered two months of policy-driven volatility, only to end up roughly where they started. After a nearly 20% decline from late February to early April, the S&P 500 has regained most of its losses and is within 4% of its all-time high. What remains is weak business and consumer confidence, rising inflation expectations, and a Federal Reserve that has paused rate cuts. While easing tensions have removed the worst-case scenario, the full impact of recent events may take months or longer to become known. The key question is what happens to economic and earnings growth. The U.S. economy has run hot recently as consumer and government spending offset weak business investment and housing activity. The impact has been muted so far, but our primary concern is that the market already has high expectations, with valuation multiples near all-time highs. The Investment Office continues to actively monitor the strength of the jobs market, which provides consumers the confidence to spend. Last week, initial jobless claims rose to 240,000, above the consensus estimate of 230,000, while continuing claims climbed to 1.92 million for the week ending May 17, the highest level since 2021.
Bullish Considerations. The market staged a COVID-style rebound over the past two months and currently sits less than 4% below all-time highs. What catalysts could keep the rally going? Solid earnings growth, particularly among AI-related companies, and continued above-trend GDP growth. Institutional investors are returning to the market as sentiment improves and trade tensions continue to de-escalate. Congress passing the tax bill, which spurs business investment, and large fiscal deficits will continue to fuel economic growth. In summary, the bullish case is that current conditions remain in place.
Bearish Considerations. What catalysts could act as headwinds in the coming months? Government spending could decline after multiple years of expanding fiscal deficits, weighing on GDP growth. Tariffs and the uncertainty of the trade court decision could weigh on business sentiment, delaying investment and hiring decisions. The trade court’s ruling could consume Washington DC, delaying the tax bill. The market could grow skeptical about the future profitability of artificial intelligence and the need for aggressive capex spending. Valuation multiples could normalize and fall from near all-time highs. Variable-rate borrowers could struggle to refinance debt at today’s rates after locking in low interest rates during the pandemic.
Equities
The S&P 500 returned 2% this week, spurred by a delay in EU tariffs and the U.S. Court of International Trade ruling that initially blocked the majority of tariffs (although that judgment was subsequently stayed by the Federal Circuit Court of Appeals). Nvidia, the second largest stock in the S&P 500, also supported the index following better-than-expected earnings results. All sectors in the S&P500 had positive returns with the exception of energy (-0.4%), with real estate (+2.7%), technology (+2.4%), and communication services (+2.1%) as the key leaders. EAFE markets returned +0.9%, with gains across key geographies. EM markets returned -1.1%, with both China (-2.7%) and Brazil (-1.4%) dragging on returns.
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 +1.7. The NASDAQ is at +0.9. For the next 12 months, EPS growth for S&P 500 is expected to be 6.0% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 11.9% (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 positive returns as yields fell across the curve. Municipals returned +0.4%, U.S. AGG returned +0.9% and U.S. IG returned +1.1%. HY bond returned +0.8% as spreads compressed 15bps while bank loans returned +0.3%. EM debt returned +0.4% as the U.S. dollar rose 0.2%.
Rates
Rates fell across the curve. The recession-watch 3M-10Y spread compressed 12bps but remained positive at +5. The 2Y-10Y spread compressed 1bps to +50. Rates fell in other developed markets as well. The BTP-Bund spread is at 0.98%. 5-year breakeven inflation expectations fell 3bps to 2.39% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations fell 2bps to 2.33% (vs. recent low of 2.03% on Sept 10); the 10Y real yield fell 10bps to 2.06%. The market now expects two cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.80% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index rose 0.2%. The commodities complex fell 1.8% as energy prices fell 2.4% for the week. Brent prices fell 1.4% to $64/bbl. U.S. natural gas prices rose 3.4%, while European gas fell 5.9%.
Market monitors
Volatility fell for equities and for bonds (VIX = 19, MOVE = 92); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) fell again from +1 to -9.
Weekly Commentary
Investment Commentary – June 2, 2025
Stuart Katz
Executive Summary
For the month of May, the S&P 500 returned over 6%, its best monthly performance since November 2023. Financial markets have weathered two months of policy-driven volatility, only to end up roughly where they started. After a nearly 20% decline from late February to early April, the S&P 500 has regained most of its losses and is within 4% of its all-time high. What remains is weak business and consumer confidence, rising inflation expectations, and a Federal Reserve that has paused rate cuts. While easing tensions have removed the worst-case scenario, the full impact of recent events may take months or longer to become known. The key question is what happens to economic and earnings growth. The U.S. economy has run hot recently as consumer and government spending offset weak business investment and housing activity. The impact has been muted so far, but our primary concern is that the market already has high expectations, with valuation multiples near all-time highs. The Investment Office continues to actively monitor the strength of the jobs market, which provides consumers the confidence to spend. Last week, initial jobless claims rose to 240,000, above the consensus estimate of 230,000, while continuing claims climbed to 1.92 million for the week ending May 17, the highest level since 2021.
Bullish Considerations. The market staged a COVID-style rebound over the past two months and currently sits less than 4% below all-time highs. What catalysts could keep the rally going? Solid earnings growth, particularly among AI-related companies, and continued above-trend GDP growth. Institutional investors are returning to the market as sentiment improves and trade tensions continue to de-escalate. Congress passing the tax bill, which spurs business investment, and large fiscal deficits will continue to fuel economic growth. In summary, the bullish case is that current conditions remain in place.
Bearish Considerations. What catalysts could act as headwinds in the coming months? Government spending could decline after multiple years of expanding fiscal deficits, weighing on GDP growth. Tariffs and the uncertainty of the trade court decision could weigh on business sentiment, delaying investment and hiring decisions. The trade court’s ruling could consume Washington DC, delaying the tax bill. The market could grow skeptical about the future profitability of artificial intelligence and the need for aggressive capex spending. Valuation multiples could normalize and fall from near all-time highs. Variable-rate borrowers could struggle to refinance debt at today’s rates after locking in low interest rates during the pandemic.
Equities
The S&P 500 returned 2% this week, spurred by a delay in EU tariffs and the U.S. Court of International Trade ruling that initially blocked the majority of tariffs (although that judgment was subsequently stayed by the Federal Circuit Court of Appeals). Nvidia, the second largest stock in the S&P 500, also supported the index following better-than-expected earnings results. All sectors in the S&P500 had positive returns with the exception of energy (-0.4%), with real estate (+2.7%), technology (+2.4%), and communication services (+2.1%) as the key leaders. EAFE markets returned +0.9%, with gains across key geographies. EM markets returned -1.1%, with both China (-2.7%) and Brazil (-1.4%) dragging on returns.
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 +1.7. The NASDAQ is at +0.9. For the next 12 months, EPS growth for S&P 500 is expected to be 6.0% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 11.9% (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 positive returns as yields fell across the curve. Municipals returned +0.4%, U.S. AGG returned +0.9% and U.S. IG returned +1.1%. HY bond returned +0.8% as spreads compressed 15bps while bank loans returned +0.3%. EM debt returned +0.4% as the U.S. dollar rose 0.2%.
Rates
Rates fell across the curve. The recession-watch 3M-10Y spread compressed 12bps but remained positive at +5. The 2Y-10Y spread compressed 1bps to +50. Rates fell in other developed markets as well. The BTP-Bund spread is at 0.98%. 5-year breakeven inflation expectations fell 3bps to 2.39% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations fell 2bps to 2.33% (vs. recent low of 2.03% on Sept 10); the 10Y real yield fell 10bps to 2.06%. The market now expects two cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.80% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index rose 0.2%. The commodities complex fell 1.8% as energy prices fell 2.4% for the week. Brent prices fell 1.4% to $64/bbl. U.S. natural gas prices rose 3.4%, while European gas fell 5.9%.
Market monitors
Volatility fell for equities and for bonds (VIX = 19, MOVE = 92); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) fell again from +1 to -9.
Disclosure and Source
Investment Commentary Sources: Bloomberg. Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any Investment decisions. The information contained herein was carefully compiled from sources believed to be reliable, but Robertson Stephens cannot guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are only available to qualified investors and are not suitable for all investors. Alternative investments include risks such as illiquidity, long time horizons, reduced transparency, and significant loss of principal. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2025 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.
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