June 2, 2025

“Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.”

Seth Klarman

Summer is here and we closed a very good May. But first here are the numbers from last week. The S&P 500 gained 2.24%, the Dow jones Industrial average managed to gain 1.79%, The Nasdaq led up 2.64%. Internationally, the FTSE 100 was up .38% and the MSCI-EAFE gained .5%.  The 2-Year Treasury paid 3.90% and the 10-Year Treasury yield was 4.398%.

So, what happened? The S&P 500 gained for the week, trading within a narrow range that has characterized market activity for the past three weeks. The risk is that uncertainties and a sell-in-May-and-go-away mentality may cap gains over the summer. However, the index is trading above critical support levels and a pair of moving averages, poised to move higher, provided a catalyst emerges. U.S. stocks had their best month since late 2023. The S&P 500 rose over 6%, the Dow industrials added 3.9% and the Nasdaq Composite gained 9.6%. Will we have a good summer? Unknown, but possibilities include trade or tariff relief which will support a higher market.

The biggest news of the week is that trade negotiations are progressing as expected, although not quickly, along with earnings from NVIDIA. NVIDIA reported a better-than-expected quarter, despite the impact of lost business in China, and provided solid guidance. Key takeaways from the report are that AI spending remains robust and that its core businesses, excluding data centers, are experiencing growth. Analysts are upgrading the stock and lifting their price target following the release, suggesting that any price weakness presents a good buying opportunity.

The good news was on inflation, Inflation fell to 2.1% in April from 2.3% in March, according to the Federal Reserve’s preferred gauge, below the level economists had forecasted. After ticking up through the fall, the Consumer Price Index has fallen throughout the first quarter of this year, dropping down to a 2.3% annual increase from 3% in January. Consumer spending also slowed sharply in April, with just a 0.2% increase, while the savings rate jumped to 4.9%, its highest level in nearly a year.

Consumers also saw their personal income rise 0.8%, ahead of the forecast, with food prices falling 0.3% despite energy goods and services increasing 0.5%.

Remember I reported a record drop in consumer confidence a few weeks ago?  Well guess what, Consumer confidence rebounded in May after five straight months of declines as President Trump dialed back his aggressive stance on tariffs against China. The latest index reading from the Conference Board was 98 in May, well above the 85.7 seen in April and the 87.1 economists had expected. The expectations index surged off its 13-year low seen in April, reaching 72.8 in May, far above 55.4 in the month prior. This marked the largest month-over-month increase for that metric since May 2009.

In other news, Elon Musk returns to the private sector, last Wednesday night, Elon made it clear that the reason he was leaving his role leading the Department of Government Efficiency (DOGE) project was due to a rule limiting special government employees to 130 days of service rather than any rumored feud with President Donald Trump, or any other media concocted disagreements.  The president gave the Tesla chief a fond farewell. Behind the scenes, Musk’s rocky four-month tenure in government has seen flashes of skepticism and frustration from Trump and his senior aides, reflecting the broader exasperation over roadblocks that have slowed Musk’s cost-cutting efforts, from court challenges to bureaucratic delays. In the end the greatest service was exposing how Washington does business, both sides were exposed for the corruption and disregard for the American taxpayer. One can only hope Elon musk is correct that “this is only the beginning”.

Also, President Donald Trump delayed proposed tariffs, this time on the European Union, and markets swung positive.  The previous 90-day pauses on Chinese imports and the so-called reciprocal tariffs not only resulted in better market performance, as previously mentioned, they seemed to have boosted Americans’ overall outlook.

With Memorial Day weekend officially behind us, the summer vibes are starting to emerge. Barrons’s columnist Ian Salisbury writes that the typical “summer lull” for markets may not be on the agenda this year. Instead, investors may want to brace for some significant volatility. “While stocks are back roughly to where they started the year, measures like corporate profits and consumer sentiment look iffy. What’s more, many of the market’s problems stem from Washington, whether tariffs or taxes. Those debates are nowhere close to being resolved,” Ian writes. Here are some big events to watch for this summer:

July 4: Trump has urged Republicans to deliver the massive tax and spending bill to his desk before the Fourth of July. “Trump is no doubt hoping markets will rally on the prospect of major tax cuts, much the way they did following his 2016 election,” Ian says.  July 9: The temporary, 90-day pause on implementing the so-called reciprocal tariffs is set to expire on July 9. The temporary deal with China that reduced tariffs for 90 days expires Aug. 12. July 30: The Federal Reserve may have some impact on markets as well. The Fed will meet twice over the summer, on June 17-18 and July 29-30. While most Fed watchers expect the central bank to keep interest rates steady at the June policy meeting, the outlook for July is more uncertain. Do not expect any earth-shaking news from the Federal Reserve, the odds on favorite is that they will bump along reluctantly on interest rates until the economy seems to be running efficiently the balance of the year. The only sticking point is still high mortgage rates, so a move on a decrease in interest rates seems to be the solution, hopefully in the near future.

As we finish the second quarter some good news points to 2025 shaping up to be another positive year for the market, The Bureau of Economic Analysis also revised its first-quarter GDP estimate up a tenth of a percentage point to a decline of 0.2%. If trade policy success is demonstrated, and the US continues to collect record revenue form tariffs as it has so far, coupled with a significant tax cut in the ‘Big Beautiful Bill”. Investors should be looking at some good gains this year.

Mike