Executive Summary
U.S. stocks closed within ~2% of their all-time highest level since February 2025, lifted by a combination of resilient jobs data and signs of progress in U.S.-China trade negotiations. Bond Yields climbed as investors recalibrated expectations for Federal Reserve policy, following economic signals that eased fears of an imminent slowdown and fluctuating levels of concern about budget deficits. In fixed income, Treasuries declined across the curve, with two-year yields topping 4%, as money markets reduced the odds of a Fed rate cut in 2025. The shift came after a closely watched nonfarm payrolls report showed a 139,000 gain in May jobs—modest but above expectations, even after 95,000 jobs were removed from the prior two months’ estimates. The unemployment rate held steady at 4.2%, while wage growth accelerated, suggesting underlying strength in the labor market despite slower headline gains.
In short, investors appear immunized against the risks of tariffs, recession, and potential inflation based on this week’s CPI and PPI reports. While the Investment Office recognizes the outlook appears “better off” than April’s concerns, the reality is when Wall Street consensus metrics are measured against January 2025, the effective tariff rate is ~5x higher than 3%, S&P500 2025 estimated earnings growth is about 35% lower than 14%, GDP growth is ~40% lower than 2.5% and high yield credit spreads are only 4.5% higher than 287bps.
Equities
The S&P 500 returned 1.5% as data showed the U.S. labor market is holding up despite concerns about risks stemming from President Donald Trump’s tariff war. A contraction in the ISM Services gauge showed a slowing economy with traders boosting bets on the Fed cutting rates as early as September. Communication services (+3.2%) and technology (+3.0%) were the best performing sectors in the S&P 500; consumer staples (-1.5%) and utilities(-1.0%) were the laggards. EAFE markets returned +0.7%, with gains in Europe (+1.4%) offset by losses in Japan (-1.8%). EM markets returned 2.3%, with gains in China (+2.5%) as talks on the trade war progressed.
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 +1.8. The NASDAQ is at +1.0. For the next 12 months, EPS growth for S&P 500 is expected to be 5.9% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 12.0% (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 +0.1%, U.S. AGG returned -0.4%, and U.S. IG returned -0.2%. HY bond returned +0.3% as spreads compressed 15bps while bank loans returned +0.2%. EM debt returned +0.4% as the U.S. dollar fell 0.1%.
Rates
Rates rose across the curve based on the better-than-expected jobs numbers. The recession-watch 3M-10Y spread widened 11bps to +16. The 2Y-10Y spread compressed 3bps to +46. Rates rose in Europe but fell slightly in Japan and the U.K. The BTP-Bund spread is at 0.93%. 5-year breakeven inflation expectations fell 3bps to 2.36% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations fell 1bp to 2.32% (vs. recent low of 2.03% on Sept 10); the 10Y real yield rose 12bps to 2.18%. 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 fell 0.1%. The commodities complex rose 4.1% as energy prices rose 6.1% for the week. Brent prices rose 4.0% to $66/bbl. U.S. natural gas prices rose 9.8%, while European gas rose 6.2%.
Market monitors
Volatility fell for equities and for bonds (VIX = 17, MOVE = 90); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) was unchanged at -9.
Weekly Commentary
Investment Commentary – June 9, 2025
Stuart Katz
Executive Summary
U.S. stocks closed within ~2% of their all-time highest level since February 2025, lifted by a combination of resilient jobs data and signs of progress in U.S.-China trade negotiations. Bond Yields climbed as investors recalibrated expectations for Federal Reserve policy, following economic signals that eased fears of an imminent slowdown and fluctuating levels of concern about budget deficits. In fixed income, Treasuries declined across the curve, with two-year yields topping 4%, as money markets reduced the odds of a Fed rate cut in 2025. The shift came after a closely watched nonfarm payrolls report showed a 139,000 gain in May jobs—modest but above expectations, even after 95,000 jobs were removed from the prior two months’ estimates. The unemployment rate held steady at 4.2%, while wage growth accelerated, suggesting underlying strength in the labor market despite slower headline gains.
In short, investors appear immunized against the risks of tariffs, recession, and potential inflation based on this week’s CPI and PPI reports. While the Investment Office recognizes the outlook appears “better off” than April’s concerns, the reality is when Wall Street consensus metrics are measured against January 2025, the effective tariff rate is ~5x higher than 3%, S&P500 2025 estimated earnings growth is about 35% lower than 14%, GDP growth is ~40% lower than 2.5% and high yield credit spreads are only 4.5% higher than 287bps.
Equities
The S&P 500 returned 1.5% as data showed the U.S. labor market is holding up despite concerns about risks stemming from President Donald Trump’s tariff war. A contraction in the ISM Services gauge showed a slowing economy with traders boosting bets on the Fed cutting rates as early as September. Communication services (+3.2%) and technology (+3.0%) were the best performing sectors in the S&P 500; consumer staples (-1.5%) and utilities(-1.0%) were the laggards. EAFE markets returned +0.7%, with gains in Europe (+1.4%) offset by losses in Japan (-1.8%). EM markets returned 2.3%, with gains in China (+2.5%) as talks on the trade war progressed.
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 +1.8. The NASDAQ is at +1.0. For the next 12 months, EPS growth for S&P 500 is expected to be 5.9% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 12.0% (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 +0.1%, U.S. AGG returned -0.4%, and U.S. IG returned -0.2%. HY bond returned +0.3% as spreads compressed 15bps while bank loans returned +0.2%. EM debt returned +0.4% as the U.S. dollar fell 0.1%.
Rates
Rates rose across the curve based on the better-than-expected jobs numbers. The recession-watch 3M-10Y spread widened 11bps to +16. The 2Y-10Y spread compressed 3bps to +46. Rates rose in Europe but fell slightly in Japan and the U.K. The BTP-Bund spread is at 0.93%. 5-year breakeven inflation expectations fell 3bps to 2.36% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations fell 1bp to 2.32% (vs. recent low of 2.03% on Sept 10); the 10Y real yield rose 12bps to 2.18%. 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 fell 0.1%. The commodities complex rose 4.1% as energy prices rose 6.1% for the week. Brent prices rose 4.0% to $66/bbl. U.S. natural gas prices rose 9.8%, while European gas rose 6.2%.
Market monitors
Volatility fell for equities and for bonds (VIX = 17, MOVE = 90); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) was unchanged at -9.
Disclosure and Source
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