June Market Thoughts
The Limits of Data in an Ever-Changing Environment
May Recap and June Outlook
May was a month of variation in belief systems. Markets turned positive on a hope that a solution on tariffs would be eventually forthcoming. The Fed stuck to its position that more data was needed before a further move on rates. Economic data remained positive, painting the picture of an economy that is still healthy and potentially resilient. Economists and other observers, however, began to tilt somewhat towards a scenario in which challenges begin to arise. All the conflicting information can cause confusion in market analysis.
Developing a clear picture of what is going on is becoming increasingly difficult. Tariffs are the biggest wildcard, as the effective rate of tariffs moves drastically, seemingly from day-to-day, so calculating the impact becomes challenging. Positive data, such as the May non-farm payrolls beating expectations, brings with it a double-edge sword – good news now, but complicates the decision of the Fed in resuming interest rate cuts.
Let's get into the data:
Inflation, as measured by CPI, hit a significant low. For the 12 months ended in April, CPI was 2.3%, the lowest since February 2021. The monthly number rose 0.2%.
Non-farm payrolls for May came in at 139,000. The U.S. Bureau of Labor Statistics reported that the labor market added slightly more than the 130,000 jobs that were expected, and the unemployment rate stayed at 4.2%.
Business Activity has slowed. The Institute for Supply Management’s (ISM) benchmark® fell below the 50-point demarcation line between growth and contraction. New orders also fell, to the lowest point since December 2022, when inflation was raging.
GDP appears to be rebounding. The Atlanta Fed’s GDP Now estimate for Q2 was at 3.8% in early June.
What Does the Data Add Up To?
Outside of the stock and bond markets, the market everyone is watching is the real estate market. The view here isn’t good. The potentially extended pause in interest rate cuts and the uncertainty brought on by tariffs and gradually rising prices is creating a lose-lose situation for buyers and sellers. The “sellers” market we’ve seen over the last few years has lost steam, and according to RedFin, sellers now outnumber buyers by 34%, the biggest gap in over 12 years. Mortgage rates rose steadily over the last month, breaching 7.0%, before finally dropping in the first week of June. High rates are keeping buyers on the sidelines.
What will the Fed do? Pressure to cut rates is clear, and in recent days the conversation over whether the Fed will be “too late” again, as they were in 2022 when inflation spiked and the Fed didn’t act, under the belief that the increase in prices would be transitory. With inflation finally near 2%, the fear now is that the economy will fall into the only thing possible worse than high inflation.
Stagflation is when prices are rising but the economy is not growing. For the Fed, the risk is that acting too quickly to cut interest rates in an attempt to inoculate the economy against the economic pain caused by tariffs will just increase inflation, which will put pressure on consumers, who will respond by cutting demand. With 70+% of GDP fueled by consumers, that will result in a stagnant or shrinking economy. And around we go. The CME Group’s FedWatch tool is currently projecting the first rate won’t be likely until September.
Even if the economy does fall into stagflation, there is some hope that it will be short-lived. The decrease in consumer demand coupled with a slowdown in business investment related to the initial impact of tariffs could create a slump that will ultimately put pressure on wages and prices.
Chart of the Month: Inflation Is Trending Down for Now
Source: Bureau of Economic Analysis
Equity Markets in May
The S&P 500 was up 6.15% for the month
The Dow Jones Industrial Average gained 3.94% for the month
The S&P MidCap 400 rose 5.25% for the month
The S&P SmallCap 600 increased 5.07% for the month
Source: S&P Global. All performance as of May 30, 2025.
Ten of the eleven S&P 500 sectors had positive returns, with Information Technology out front for the second month in row, up 10.79% and Health Care in last place, down 5.72%. The Magnificent added significantly to May’s returns, after struggling earlier in the year. Monthly intraday volatility, measured as the daily high/low, decreased to 1.09% in May from April’s 3.21%. Earnings season is nearly complete, with 488 issues having reported, and 377 of those (77.3%) beating estimates on earnings.
Bond Markets in May
The 10-year U.S. Treasury ended the month at a yield of 4.40%, up from 4.18% the prior month. The 30-year U.S. Treasury ended May at 4.92%, up from 4.69%. The Bloomberg U.S. Aggregate Bond Index returned -0.39%. The Bloomberg Municipal Bond Index returned -0.13%.
The Informed Investor
We are at the mid-point of the year, so it’s time to get back to basics and take stock of where you are compared to what you wanted to accomplish this year. Before summer gets into full swing, it’s a good idea to take time to review the core components of your plan: spending, saving, and investing.
Are your budgets in line with expectations? Do you have any big expenditures coming up? Is your emergency fund topped up? A reality check of where you are can help you keep spending under control as the lazy days of summer get underway. Vacation spending has a tendency to be difficult to keep in budget, so having a realistic picture of your spending so far can help you set good limits.
A difficult first quarter has turned around for now, but the losses may present opportunity. This could be a great time to add sidelined cash to the market or capture a few tax-losses in a taxable account.
Safe Lock Advisors, LLC dba Prevett Financial is an investment adviser registered in the State of Kentucky and those states in which is conducts advisory business or is exempt from registration. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. Prevett Financial has reasonable belief that this marketing does not include any false or material misleading statements or omissions of facts regarding services, investment, or client experience. Prevett Financial has reasonable belief that the content as a whole will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Prevett Financial has provided charts or graphs which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them.
This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This content not reviewed by FINRA