Week of May 12, 2025

Key Points for the Week

• The stock market rebounded in April with one of the best one-month returns ever.
• The Federal Reserve met last week and kept rates unchanged.
• The Fed’s focus is likely to be on taming inflation rather than keeping the unemployment rate low in the face of tariff uncertainty.
• The Fed is focusing on inflation because it still tilts optimistic on growth even with tariff uncertainty, but that does increase economic risk if they are wrong.

Current Trends & News is a weekly financial recap curated by SPC Financial®’s team of wealth management and tax-integrated advisors. We monitor and explore the intricacies of the financial world and share insights into market developments.

Economic Update

In recent weeks, United States stock markets saw steady gains and recovered from the April downturn as investors set aside uncertainty, reported Connor Smith of Barron’s.

Last week, investors became more cautious as they considered:

• Trade successes. Last week, President Trump announced a trade deal with the United Kingdom and, earlier this week, a trade deal was made with China.
• The outlook for the economy. Last week, the Federal Reserve left rates unchanged. Fed Chair Jerome Powell offered assurances that the economy is solid, the unemployment rate remains low, and inflation is closer to the Fed’s two percent goal but not there yet. In a post meeting press conference, Powell stated, “we’ve judged that the risks to higher employment and higher inflation have both risen [compared to March] there’s a great deal of uncertainty.”
• The outlook for company earnings. Companies in the S&P 500 Index performed well in the first quarter. Overall, the earnings growth rate for companies that have reported so far is 13.4 percent, reported John Butters of Factset. However, as Butters explained, analysts lowered [earnings per share] estimates more than normal for S&P 500 companies because of uncertainty, including a possible economic slowdown or recession.

Last week, major U.S. stock indexes finished flat to slightly lower. Yields on many maturities of U.S. Treasuries moved slightly higher over the week.

This Week in the Markets

Last Thursday officially marked one month from the April 8 S&P 500 lows. Since April 8, the S&P 500 has risen, and was the best gain over a one-month period since we came off the pandemic lows in March 2020.

We found 13 other times stocks gained at least 13% over a one-month period and the future returns were very strong. In fact, only twice were prices lower a year later and that was during the early 2000s tech bubble bear market. The past four times this happened saw at least double-digit returns going out the next year. Will double-digit returns repeat in 2025?

The S&P 500 fell 18.9% from the February 19 peak to the April 8 lows.

The good news is stocks have now recovered half of that decline. In fact, looking at the past 16 bear or near bear markets only once did stocks go on to make new lows after half of the bear market was recovered. Of course, that was the very last time, in 2022, but this is still a good sign. Lastly, a year later stocks were higher an incredible 16 out of 16 times after recovering half of the bear (or near bear) market.

The Federal Reserve

The Federal Reserve (Fed) did not move policy rates at their May meeting, keeping them in the 4.25 – 4.50% range. This was widely expected, but all eyes (and ears) were on how they would telegraph future moves. Short answer: they did not. The only major change in the official post-meeting statement was that risks of both higher unemployment and higher inflation have risen, but that raised another question.

If unemployment rises and inflation also rises, which side of their mandate would the Fed prioritize, maximum employment or low and stable inflation?

Fed Chair Jerome Powell did not provide a direct answer, mostly falling back on the refrain that they are unable to see which way things will play out. He admitted that prioritizing one side of their mandate over the other will be a difficult judgement, but the good news is that they do not have to decide now since the labor market looks healthy — so they can afford to wait and watch, without being in a hurry. Uncertainty has clearly increased, along with downside risks, but there is nothing distinctly negative in the data yet. The Fed still views the economy as healthy, albeit with downbeat sentiment amongst consumers and businesses.

Focus Likely to Be on Taming Inflation, at the Expense of Employment

If push comes to shove it looks like the Fed will prioritize inflation over employment. For one thing, Powell once again noted that “without price stability you cannot achieve long periods of labor market stability.”

This effectively means that if the Fed is forced to choose between taming inflation versus avoiding higher unemployment, they are going to do what it takes to tame inflation first. Moreover, Powell added that policy is currently in a good place, which gives them a lot of flexibility to act down the road depending on how the data comes in. By his own admission, policy right now is “sufficiently restrictive” even though the labor market is not a source of inflationary pressure.

Keep in mind that pausing on rate cuts does not just leave us with a benign status quo. Even without moving rates, policy is implicitly getting tighter because wage growth is easing. Historically, a fed funds rate sitting well above the pace of wages has constricted the economy and ultimately these situations ended up in recessions. The relationship between rates and wage growth matters even if rates stay steady.

In short, policy is tight right now and it is going to remain tight until the Fed sees more data. Powell also mentioned that eventually they may decide between their two mandates by focusing on the one that is further away from their goal.

Core inflation, as measured by the Fed’s preferred personal consumption expenditures metric (PCE), is currently at 2.7% year over year (as of March). That is elevated relative to the Fed’s target of 2%. Tariff front-running and higher import costs are likely to at least partially feed into consumer prices. In fact, the Manheim Used Vehicle Index, which tracks auction prices for used vehicles, rose 2.7% in April, a significant jump compared to recent readings in the range of 0.2%. That takes prices to their highest level since October 2023 and came about as Americans rushed to buy cars to get ahead of tariffs (which pushed inventories down). This may show up in official inflation data, albeit with a lag. We may see a sharp pickup in goods inflation over the next several months, including vehicles, appliances, apparel, and consumer electronics, pushing core PCE up to 3.5 – 4% by year end. Even if it turns out to be temporary (or “transitory”), that’s 1.5 – 2%-points above the Fed’s goal.

The Fed is Also Optimistic About the Tariff Situation

It looks like the Fed is at least provisionally buying into what we would call the bull case on tariffs. Powell did highlight that since Liberation Day tariffs, the administration has entered negotiations, and so the tariff picture could change materially. The bull-case scenario may mean that tariffs come down significantly from extreme levels, perhaps down to only 10% additional tariffs on most goods, and slightly higher on Chinese imports. If this is indeed the Fed’s outlook, it squares with their decision to stand pat and not act pre-emptively to rescue the economy (especially with hard data, including recent payroll data, suggesting nothing’s broken yet).

Of course, that also means rates stay elevated, and “sufficiently restrictive” for longer, with the Fed not cutting interest rates at their next meeting in June, and perhaps not even in July. Investors have also been shifting market-implied pricing for near-term rate cuts quite significantly.

• The probability of a cut in June fell from about 34% on Wednesday morning (ahead of the Fed announcement later that day) to under 20% by the end of the week.
• The probability of at least one cut by July moved down from 100% to close to 60%.

The market is still pricing in at least three cuts in 2025 and another two in the first half of 2026. That would be a relatively quick pace of cuts of about 1.5%-points over eight meetings. In other words, markets are expecting policy to stay tight in the near term, but an economic slowdown later in the year (and into 2026) may push the Fed to cut more rapidly. There is a reason why longer-term bond yields fell after the Fed meeting, despite near-term rate cut expectations fading.

Cyclical areas of the economy like manufacturing (which will also be hit by higher input costs) and housing will continue to struggle. Mortgage applications have picked up in recent weeks and are currently running 13% above where they were a year ago, but they’re still a 37% below average 2019 levels. Refinancings are down 59% from average 2019 levels. The whole tariff situation, and ensuing uncertainty, simply increases the risk of tight monetary policy, with elevated interest rates becoming a larger and larger drag on the economy.

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits.
• Asks you to pay to receive a prize.
• Suggests that paying will increase the chance of winning.
• Requests financial information, such as a bank account or credit card number.
• Pressures you to act immediately.
• Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way.
• Remain calm.
• Think back over the call. Write down any personal information you may have inadvertently shared.
• Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state’s attorney general or your local consumer protection agency.
• Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver’s license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

Did you Know? This Week in History

May 14, 1973: America’s First Space Station Skylab, is Launched

On May 14, 1973, Skylab, America’s first space station, was successfully launched into an orbit around the earth. Eleven days later, U.S. astronauts Charles Conrad, Joseph Kerwin, and Paul Weitz made a rendezvous with Skylab, repairing a jammed solar panel and conducting scientific experiments during their 28-day stay aboard the space station.

The first manned Skylab mission came two years after the Soviet Union launched Salyut, the world’s first space station, into orbit around the earth. However, unlike the ill-fated Salyut, which was plagued with problems, the American space station was a great success, safely housing three separate three-man crews for extended periods of time and exceeding pre-mission plans for scientific study.

The crews of Skylab spent more than 700 hours observing the sun and brought home more than 175,000 solar pictures. They also provided important information about the biological effects of living in space for prolonged periods of time.

Weekly Focus

“Ferrari will always deliver one less car than the market demands.”

Enzo Ferrari, Entrepreneur

”You cannot have everything. Where would you put it?”

Steven Wright, Comedian

Links & Disclaimers

Investment advisory services offered through SPC Financial® (SPC), an investment advisory firm registered with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill, training or endorsement by the SEC.

We have placed the security of our communications with clients, prospects and others at a very high priority. Please keep in mind that email through the Internet is not 100% secure or confidential. There are many ways which email security and confidentiality may be compromised, either intentionally through viruses, malware and unlawful interceptions or inadvertently through errors and mistakes. Although we utilize encryption for highly confidential information, the use of the internet for transferring documents and information through websites, portals, vaults and other document sharing software and applications is not 100% secure.

Any information provided in this email has been prepared from sources believed to be reliable, but is not guaranteed by SPC, including its owners or employees, and is not a complete summary or statement of all available data necessary for making a financial decision. Any information provided is for informational purposes only and does not constitute a recommendation. The officers, directors, and employees of SPC may own securities mentioned in this email, including options to purchase or sell the securities.

Before making a legal or tax decision, you should contact an appropriate professional. Any tax information or advice contained in this message is confidential and subject to the Accountant/Client Privilege.

eMoney Advisor, LLC (eMoney) provides the platform for Insights by SPC Financial®. eMoney is an independent organization and is not owned or controlled by SPC or its owners or employees.

SPC, including its employees, does not accept client orders or account instructions by email. All orders and instructions must be verbally confirmed with SPC. This email: (a) is not an official transaction confirmation or account statement; (b) is not an offer, solicitation, or recommendation to transact in any security; (c) is intended only for the addressee; and (d) may not be retransmitted to, or used by, any other party. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. This email may contain confidential or privileged information; please notify the sender and delete immediately if you are not the intended recipient. SPC monitors emails and may be required by law or regulation to disclose emails to third parties.

Investment products are: Not deposits. Not FDIC or NCUA Insured. Not guaranteed by SPC or any financial institution. Subject to risk. May Lose Value.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index used to measure the daily stock price movements of 30 large, publicly owned U.S. companies. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.

The MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2007, the MSCI ACWI consisted of 48 country indices comprising 23 developed and 25 emerging market country indices. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise.

The Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented.

Please note, direct investment in any index is not possible. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Third-party links are being provided for informational purposes only. SPC is not affiliated with and does not endorse, authorize, sponsor, verify or monitor any of the listed websites or their respective sponsors, and is not responsible or liable for the content of any website, or the collection or use of information regarding any website's users and/or members. Links are believed to be accurate at time of dissemination, but we make no guarantee, expressed or implied, to the accuracy of the links subsequently.

This may constitute a commercial email message under the CAN-SPAM Act of 2003. If you do not wish to receive marketing or advertising related email messages from us, please click the “unsubscribe” link within this email message. You will continue to receive emails from us related to servicing your account(s).

Sources:

https://www.barrons.com/livecoverage/stock-market-today-05092025/card/the-market-had-a-banner-two-weeks-now-things-get-dicey--rHXi6aRToipIR0drAYQ2 https://www.whitehouse.gov/fact-sheets/2025/05/fact-sheet-u-s-uk-reach-historic-trade-deal/ https://www.bloomberg.com/news/articles/2025-05-08/stock-market-today-dow-s-p-live-updates?srnd=undefined https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20250507.pdf https://www.history.com/this-day-in-history/may-14/skylab-launched https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_050925.pdf https://insight.factset.com/analysts-making-larger-cuts-than-average-to-eps-estimates-for-sp-500-companies-for-q2 https://www.barrons.com/market-data?mod=BOL_TOPNAV https://www.carsonwealth.com/insights/blog/market-commentary-stocks-have-rallied-hard-despite-a-quiet-week-after-the-fed-stands-pat/ https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2025