The Markets

Employment was top of mind for financial markets last week.

Economists and investors hoped May employment information would provide insight to the state of the United States economy, as well as clues about when the Federal Reserve (Fed) may lower the federal funds rate again.

Employment data arrives in two reports that offer different perspectives on the employment situation. Last week, the trends were similar – new jobs creation slowed from April to May – although the number of new jobs reported was quite different. Here’s a brief overview:

+37,000 new jobs per the ADP National Employment Report. Mid-week, this supplemental report showed fewer new jobs were added in May (37,000 new jobs) than had been created in April (62,000 new jobs).

“That was a big miss vis-a-vis what economists were expecting, and so we saw a negative market reaction initially. But if you talk to economists, guess what, they say that ADP number is not a very good predictor of the [Bureau of Labor Statistics] number, and they really give it much less weight, if any weight at all,” reported Julie Hyman of Yahoo!Finance.

+ 139,000 new jobs per the Bureau of Labor Statistics (BLS). On Friday, the government’s Employment Situation Summary reported more jobs were created than economists had anticipated. However, jobs growth slowed from April (147,000 new jobs) to May (139,000 new jobs), and initial estimates for March and April were revised lower.

“While the headline number came in higher than expected, previous months were revised lower — a pattern which has been repeating itself for a while now and which has prompted a lot of head-scratching,” reported Tracy Alloway and Joe Weisenthal of Bloomberg. The pair cited a source who believes one reason for the revisions is that key data about U.S. business closures and business openings arrives after the initial report is issued.

The unemployment rate, which is determined by a survey of households, remained steady at 4.2 percent in May. “…the household survey found a 625,000 decline in the labor force, which helps the jobless rate since those not in the workforce aren’t counted as unemployed,” reported Randall Forsyth of Barron’s.

So, what did the report tell us about the economy and prospective Fed rate policy? “Not as bad as feared but not as good as it looks. That’s what the latest employment data show. But for financial markets, the numbers suggest that the Federal Reserve may be slower to lower interest rates,” reported Forsyth.

By the end of the week, major U.S. stock indexes were all in positive territory year-to-date, reported Connor Smith of Barron’s. Yields on longer maturities of U.S. Treasuries moved higher over the week.

ABOUT BORROWING AND LENDING. In the United States, many people engage in short-term borrowing. They use credit cards to acquire goods or services – springing for a dinner out, charging the cost of a new video game, or purchasing a replacement refrigerator. Then, they pay the money back. If the credit cardholder doesn’t reimburse the card provider in full each month, then they will owe interest on the money they’ve borrowed. Buying on credit is fast and convenient, and it can be quite profitable for the lender.

In China, the payment system can work differently. It’s more of a “pay now and buy later” approach where buyers lend their money to companies, reported The Economist. 

“When you get a haircut or eat at a restaurant, the seller encourages you to pay in advance for multiple transactions. You might pay upfront for ten haircuts, or put 1,000 yuan ($140) on a pre-paid card, and the business will, in return, give you extra credit to spend… The bonus the firm adds to the customer’s deposit rises with the size of the initial outlay, and can be large. Customers putting down 10,000 yuan can receive an extra 2,000 yuan to spend in the store. If they use the money within a year, that amounts to an annual “interest” rate of 20 [percent], paid in kind.”

See what you know about borrowing and lending by taking this brief quiz.

1. If the Chinese system seems familiar, it may be because it’s similar (in some ways) to gift cards. In 2024, Americans spent more than $300 billion on gift cards, according to a source cited by Charles Passy of MarketWatch. However, many Americans don’t use the gift cards they receive. That can make gift cards very profitable for companies. In 2024, a popular coffee retailer reported it had a significant amount of money stored in unredeemed gift cards and did not expect most of the cards to ever be redeemed. How much money was it?

1. $379 million
2. $985 million
3. $1.77 billion
4. $4.56 billion

2. When people buy bonds, they agree to lend their money to a government or organization. In return, the government or organization agrees to repay the loan and pay a specific amount of interest. Imagine that you lend your child $2,000 to buy a car. In exchange, they promise to repay you $200 a month (until the debt is repaid) and to mow your lawn every week. In this example, the lawn mowing would:

1. Probably never happen.
2. Represent the repayment of principal.
3. Represent the payment of interest on the loan.
4. Be your reward for being a wonderful parent.

3. A credit score offers insight to a person’s financial circumstances at a specific time, and helps financial institutions decide whether to lend to a person or not. The practice began in 1989 when the first credit-scoring algorithm was created. How many credit scores can a person have?

1. One
2. Three
3. Fourteen
4. Hundreds

4. When people buy homes, the mortgage rates received are based on a specific benchmark. When the benchmark rate is higher, so is the mortgage rate. What is the benchmark for the 30-year mortgage rate?

1. The 5-year average return of the Standard & Poor’s 500 Index
2. The Federal Open Market Committee federal funds rate
3. The 10-year U.S. Treasury note rate
4. The Big Mac Index

Weekly Focus – Think About It
“The pleasure of rooting for Goliath is that you can expect to win. The pleasure of rooting for David is that, while you don’t know what to expect, you stand at least a chance of being inspired.”
 – Michael Lewis, Author

Answers: 1) c; 2) c; 3) d; 4) c

Sources:

https://mediacenter.adp.com/2025-06-04-ADP-National-Employment-Report-Private-Sector-Employment-Increased-by-37,000-Jobs-in-May-Annual-Pay-was-Up-4-5#:

https://mediacenter.adp.com/2025-04-30-ADP-National-Employment-Report-Private-Sector-Employment-Increased-by-62,000-Jobs-in-April-Annual-Pay-was-Up-4-5

https://finance.yahoo.com/video/private-vs-govt-jobs-where-214534342.html

https://www.bls.gov/news.release/empsit.nr0.htm (report and Table B)

https://www.bloomberg.com/news/newsletters/2025-06-06/america-s-data-disaster-is-already-here? or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/06-09-25-Bloomberg-Americas-Data-Disaster%20-%205.pdf

https://www.barrons.com/articles/jobs-report-fed-rate-cuts-ff1b6878?refsec=economy-and-policy&mod=topics_economy-and-policy

https://www.barrons.com/livecoverage/stock-market-news-today-060625?mod=hp_LEDE_C_2 or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/06-09-25-Barrons-The-Bottom-Line-of-the-Jobs-Report%20-%207.pdf

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2025 or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/06-09-25-Barrons-Stocks-Rally-In-Wake%20-%208.pdf

https://www.investopedia.com/how-do-credit-cards-work-5025119#

https://www.economist.com/china/2025/05/29/chinas-crazy-reverse-credit-cards or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/06-09-25-Economist-Chinas-Crazy-Reverse-Credit-Cards%20-%2010.pdf

https://www.marketwatch.com/story/people-are-spending-300-billion-a-year-on-this-product-some-experts-say-they-should-stop-7c73aaff#

https://www.marketwatch.com/story/the-bank-of-starbucks-coffee-retailer-has-1-77-billion-in-unredeemed-gift-cards-138df8f5

https://www.econlib.org/library/Topics/Details/bonds.html

https://www.creditkarma.com/credit/i/how-many-credit-scores-do-i-have

https://www.fanniemae.com/research-and-insights/publications/housing-insights/rate-30-year-mortgage

https://www.goodreads.com/author/quotes/776.Michael_Lewis

The Markets

Consumers were feeling cautiously optimistic.

When people talk about the United States economy, they’re usually referring to gross domestic product (GDP), which is the value of all goods and services produced in here. For the first quarter of this year, U.S. GDP was nearly $30 trillion. That’s a huge number. It would take 14 years for a military jet flying at the speed of sound and reeling out one-dollar bills to release $1 trillion.

The American consumer is the powerhouse of the U.S. economy. Consumer spending accounts for two-thirds of GDP. Spending not only supports economic growth, it also provides insight to the health of the economy. That’s because the purchases consumers make reflect consumer sentiment, the job market, inflation, stock market performance, and a myriad of other factors.

Last week, a lot of consumer-related data was released.

Early in the week, the Conference Board reported that its Consumer Confidence Index bounced back “from a near five-year low”, reported Nazmul Ahasan of Bloomberg. “Consumer confidence rebounded in May following five straight months of declines as a series of new tariff deals improved Americans’ views on the economy… Consumers were less pessimistic about business conditions and job availability in the next six months, and became more optimistic about their future income prospects…Americans were also feeling better about their investments, thanks to the stock market’s May recovery” reported Sabrina Escobar of Barron’s.

The University of Michigan’s Consumer Sentiment Index (UMCSI) also showed a change in sentiment, although the improvement was less pronounced than that of the Conference Board’s Index. The final UMCSI reading for May showed consumer optimism stabilized from April to May. “Consumer sentiment was unchanged from April, ending four consecutive months of plunging declines. Sentiment had ebbed at the preliminary reading for May but turned a corner in the latter half of the month following the temporary pause on some tariffs on China goods,” reported Surveys of Consumers Director Joanne Hsu.

Late in the week, the Bureau of Economic Analysis reported that personal income rose 0.8 percent in April, while prices increased 0.1 percent. The boost in income did not lead to higher spending, though. Consumers spent modestly more in April. Spending was up 0.1 percent, a slower pace than the 0.7 percent rise in March. Americans chose to save in April, socking away more than $1 trillion – almost five percent of disposable income in April.

Major U.S. stock indexes finished the week higher. The Standard & Poor’s 500 Index and Nasdaq Composite Index delivered the best monthly performance since November 2023, reported Connor Smith of Barron’s. Yields on longer maturities of U.S. Treasuries finished the week lower.

TOO VERBOSE? For centuries, maps were essential navigation tools. In recent years, travelers have come to rely on global positioning systems (GPS) that require them to follow directions rather than read a map. While GPS may seem simpler, it has occasionally led both real and fictional people astray. In a memorable episode of The Office, Michael Scott argues, “Maybe it’s a shortcut, Dwight. It said go to the right…The machine knows!” before driving into a lake.

Now, a new app wants people to navigate using words instead of latitude and longitude. The inspiration for the new approach was a numerical miscommunication.

“[The app’s co-founder] was running a business providing the music for events such as weddings in venues such as pretty, rural villas. But the problem with pretty, rural villas is that they tend to be quite hard to find. Street numbers work only if there are streets. Postcodes cover vast areas of the countryside. And in much of the world there is no formal address system at all. [The co-founder] took to giving directions in latitude and longitude. Then at an event in Italy, a lorry drove to n 42.804509, e 12.683829 rather than n 41.804509, e 12.683829. The difference in numbers was tiny: a single digit. The difference to [the co-founder] was vast: his sound system was two hours north, rather than somewhere east of Rome,” reported The Economist.

To improve users’ ability to find locations, the new app divided the world into trillions of three-meter squares and assigned each one a unique combination of three words. Users click on a square to find the three-word address. For example,

• The Hollywood sign in Los Angeles is located at “incomes.amount.formed”,
• Yellowstone National Park can be found at “flashed.faded.eggshells”,
• The Statue of Liberty is “planet.inches.most”,
• Graceland is “part.coin.soil”, and
• The Gateway Arch is “roses.bonus.model”.

The company says three-word addresses make precise locations easier to communicate, so it’s easier to meet up with friends, find a destination, or get help in an emergency. However, choosing words to identify locations was not simple or straightforward. The company “employs linguists who manually go through each country’s dictionary, removing rude words lest they offend (“bottom” appears in the English version but not “bum”) and homophones lest they confuse (English loses “sun” and “son”). Complicated words are not removed entirely but do tend to be exiled to less populous places (“dodecahedron”…often ends up in the ocean).”

The new approach to navigation gives a whole new meaning to Mark Twain’s observation: The difference between the almost right word and the right word is really a large matter.

Weekly Focus – Think About It

“I’ve had a lot of worries in my life, most of which never happened.”
 – Mark Twain, Humorist

Sources:

https://www.investopedia.com/ask/answers/what-is-gdp-why-its-important-to-economists-investors/

https://fred.stlouisfed.org/series/GDP

https://www.imaginationstationtoledo.org/educators/diy-activities/what-does-a-trillion-dollars-look-like

https://fred.stlouisfed.org/series/DPCERE1Q156NBEA

https://sgp.fas.org/crs/misc/IF11657.pdf

https://www.bloomberg.com/news/articles/2025-05-27/us-consumer-confidence-jumps-most-in-four-years-on-trade-truce or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/06-02-25-Bloomberg-US-Consumer-Confidence-Jumps%20-%206.pdf

https://www.barrons.com/livecoverage/stock-market-news-today-052725/card/consumer-confidence-rebounds-in-may-Cbc4s1Q53oQfamXZKeaJ or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/06-02-25-Barrons-Consumer-Confidence-Rebounds%20-%207.pdf

https://www.sca.isr.umich.edu

https://www.bea.gov/sites/default/files/2025-05/pi0425.pdf

https://www.barrons.com/market-data?mod=BOL_TOPNAV or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/06-02-25-Barrons-DJIA-S&P-Nasdaq%20-%2010.pdf

https://www.barrons.com/livecoverage/stock-market-news-today-053025?mod=hp_LEDE_C_1 or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/06-02-25-Barrons-S&P-500-Finishes-Session-Flat%20-%2011.pdf

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202505

https://www.imdb.com/title/tt1031459/characters/nm0951838

https://www.economist.com/britain/2025/05/29/what-on-earth-is-what3words or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/06-02-25-Economist-What-On-Earth%20-%2014.pdf

https://what3words.com/about

https://what3words.com/incomes.amount.formed

https://what3words.com/flashed.faded.eggshells

https://what3words.com/planet.inches.most

https://what3words.com/part.coins.soil

https://what3words.com/roses.bonus.model

https://www.goodreads.com/author/quotes/1244.Mark_Twain? [Pages 1 and 3]

The Markets

Nobody likes to balance the budget.

Some pundits said Moody’s rating downgrade of U.S. Treasuries was a nothing burger. After all, the rating change didn’t provide investors with any new information. Moody’s was the third rating service to lower U.S. government bond ratings. S&P Global downgraded U.S. Treasuries in 2011, and Fitch Ratings followed suit in 2023.

However, Moody’s decision focused attention on fiscal policy – the way the United States government taxes and spends. In 46 of the past 50 years, the U.S. government has run a deficit, meaning it has spent more than it received from taxes and other sources of revenue, reported FiscalData. Every annual deficit adds to the public debt, which is about $36 trillion, according to the U.S. Debt Clock.

The U.S. government finances annual deficits (and the overall debt) by issuing Treasury bills, notes, and bonds. The U.S. promises Treasury buyers (a group that includes individuals, institutions, and governments) that it will pay interest for a specific period and then repay the amount borrowed.

When yields increase, so does the amount of interest the United States must pay

When government bond buyers have concerns about a government’s fiscal policy, demand for bonds may fall and yields may rise. That happened to U.S. Treasuries last week. The yield on the 30-year U.S. Treasury bond exceeded five percent. “The move above 5 [percent] is striking because that has been the general cap on the 30-year for about two decades,” reported Karishma Vanjani of Barron’s.

While higher yields make U.S. Treasuries more attractive to investors, they also may create challenges for economic growth. “As the national debt grows and interest rates rise, the United States will spend more of its budget on the cost of servicing that debt – crowding out opportunities to invest in the economy,” reported The Peter G. Peterson Foundation.

The United States is already paying a hefty amount of interest. In 2024, interest payments on the U.S. debt were about $880 billion, more than the U.S. budget for national defense, reported Michael Mackenzie, Liz Capo McCormick, and Ye Xie of Bloomberg.

The U.S. isn’t the only country where yields are rising. “From the U.S. to Japan, long-term borrowing costs for the world’s biggest economies have surged as investors question the ability of governments to cover massive budget deficits,” reported Alice Gledhill and Mia Glass of Bloomberg.

Over the week, major U.S. stock indexes moved lower amid worries about rising yields and fiscal policy.  Yields on longer maturities of U.S. Treasuries finished the week higher.

WHERE DO PEOPLE HAVE THE BEST QUALITY OF LIFE? Countries often measure success by comparing how much their economies produce. The United Nation’s Human Development Index (HDI) considers success from a different perspective by measuring quality of life. The index focuses on three fundamental aspects of human development: length of life, access to knowledge, and income.

The 2025 HDI, which reflects data from 2023, showed that many wealthy nations (97 percent) have regained or improved on their pre-pandemic HDI scores, while just 60 percent of poorer nations have recovered, reported The Economist. The countries with the best quality of life were:

1. Iceland,
2. Norway and Switzerland (tied),
3. Denmark,
4. Germany and Sweden (tied).

The countries with the lowest quality of life were:

188. Niger and Mali (tied),
189. Chad,
190. Central African Republic,
191. Somalia, and
192. South Sudan.

The United States ranked 17^th in the Index, tied with Liechtenstein and New Zealand. In 2023, U.S. life expectancy at birth was 79.3 years, and Americans could expect to complete about 15.9 years of school. U.S. gross national income – the total amount of money earned by people and businesses in the U.S. – per capita was $73,650. The ranking “puts the country in the Very High human development category,” stated the UN report.

Weekly Focus – Think About It

“The true test of character is not how much we know how to do, but how we behave when we don’t know what to do.”
 – John Holt, Educator

Sources:

https://www.bloomberg.com/news/newsletters/2025-05-19/about-that-moody-s-downgrade? or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-27-25-Bloomberg-About-That-Moodys-Downgrade%20-%201.pdf

https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/sourceId/6802837

https://www.fitchratings.com/research/sovereigns/fitch-downgrades-united-states-long-term-ratings-to-aa-from-aaa-outlook-stable-01-08-2023

https://www.federalreserve.gov/faqs/money_12855.htm#:

https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/

https://www.usdebtclock.org

https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/#:~:text

https://www.barrons.com/articles/global-bond-treasury-selloff-yields-7c33f4c1?mod=article_inline or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-27-25-Barrons-Global-Bond-Rout%20-%208.pdf

https://www.pgpf.org/our-national-debt/

https://www.bloomberg.com/news/articles/2025-05-21/treasury-yields-climb-auguring-5-rate-for-20-year-bond-auction or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-27-25-Bloomberg-Bond-Market-Warns-Trump%20-%2010.pdf

https://www.bloomberg.com/news/articles/2025-05-22/long-term-bond-yields-soar-globally-on-fiscal-policy-fears or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-27-25-Bloomberg-Long-Term-Bond-Yields%20-%2011.pdf

https://www.barrons.com/market-data?mod=BOL_TOPNAV or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-27-25-Barrons-DJIA-S&P-Nasdaq%20-%2012.pdf

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2025

https://hdr.undp.org/data-center/human-development-index#/indicies/HDI

https://www.economist.com/graphic-detail/2025/05/06/which-countries-have-the-best-and-worst-living-standards or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-27-25-Economist-Which-Countries-Best-Worst-Living-Standards%20-%2015.pdf

https://hdr.undp.org/data-center/country-insights#/ranks

https://hdr.undp.org/data-center/documentation-and-downloads or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-27-25-Human-Development-Reports%20-%2017.pdf

https://hdr.undp.org/data-center/specific-country-data#/countries/USA

https://www.goodreads.com/quotes/49110-the-true-test-of-character-is-not-how-much-we

The Markets

Last week, the U.S. stock market showed why it’s a good idea to stay invested through bouts of volatility.

Major U.S. stock indices notched sizeable gains as investors celebrated a trade truce with China and better-than-expected inflation numbers, while brushing off a tepid consumer sentiment reading. Here’s what happened:

The administration negotiated a trade truce with China. The United States and China agreed to reduce tariffs for 90 days. U.S. tariffs on Chinese imports will fall to 30 percent, while China’s tariffs on U.S. imports will drop to 10 percent. The Wall Street Journal reported, “The agreement lowered tariff levels far more than Wall Street had expected, with one analyst…calling the deal a ‘best-case scenario’ for investors. Goldman Sachs cut its U.S. recession odds to 35 [percent] from 45 [percent] and boosted its growth forecast.”

Inflation is closing in on the Federal Reserve’s target. Prices increased by 2.3 percent year over year in April. That put headline inflation just a smidge above the Fed’s two percent target. When the volatile categories of food and energy were excluded, prices were up 2.8 percent year over year. The price of eggs fell by 13 percent month to month leading a decline in the cost of food. Five of six major grocery store food group indexes moved lower in April.

Consumers were concerned about inflation. While the Consumer Price Index’s April inflation numbers were encouraging, the inflation numbers in the University of Michigan’s Consumer Sentiment Survey were less so. “Year-ahead inflation expectations surged from 6.5 [percent] last month to 7.3 [percent] this month…Long-run inflation expectations lifted from 4.4 [percent] in April to 4.6 [percent] in May…,” reported Surveys of Consumers Director Joanne Hsu.

The U.S. bond market was in a less cheerful mood than the U.S. stock market last week. On Friday, Moody’s lowered the rating for U.S. government bonds on concerns about the deficit (the difference between how much the government spends each year and how much it takes in through taxes) and rising interest costs. The rating service explained:

“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs. We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”

Over the week, U.S. stock markets saw solid gains with the Standard & Poor’s 500 Index moving into positive territory for the year to date. U.S. Treasury yields ended the week near where they started.

WHAT DO YOU KNOW ABOUT MEMORIAL DAY? Memorial Day offers a blend of celebration and remembrance. It’s the time when we honor the men and women who bravely sacrificed their lives in service to the United States of America. The holiday reminds us that freedom is not free and gives us an opportunity to remember those who fought and died defending our country. See what you know about Memorial Day by taking this brief quiz.

1. How do we remember the fallen on Memorial Day?
   1. Flying the flag at half mast
   2. Participating in The National Moment of Remembrance
   3. Placing flags and flowers in cemeteries
   4. All of the above

2. What type of flower is traditionally worn on Memorial Day?
   1. A sunflower
   2. A poppy
   3. A chrysanthemum
   4. A rose

3. The Medal of Honor is the United States’ highest award for military valor in action. More than 3,500 soldiers, sailors, airmen, guardians, marines, and coast guards have received the honor. How many double Medal of Honor recipients have there been?
   1. 7
   2. 12
   3. 19
   4. 22

4. Visitors to military cemeteries on Memorial Day may see coins on headstones. The type of coin left behind has significance. When a person leaves a nickel on the headstone of a service member, it means they:
   1. Appreciate the veteran’s service
   2. Trained together at boot camp
   3. Served together
   4. Were there when the veteran died

How do you celebrate Memorial Day?

Weekly Focus – Think About It

“Heroism doesn’t always happen in a burst of glory. Sometimes small triumphs and large hearts change the course of history. Sometimes a chicken can save a man’s life.”
– Mary Roach, Author

Answers: 1) d; 2) b; 3) c; 4) b

Sources:

https://www.barrons.com/market-data?mod=BOL_TOPNAV or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-19-25-Barrons-DJIA-S&P-Nasdaq%20-%201.pdf

https://www.wsj.com/livecoverage/stock-market-today-tariffs-trade-war-05-12-2025 or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-19-25-WSJ-US-China-Agree-to-Large-Tariff-Cuts%20-%202.pdf

https://www.bls.gov/news.release/pdf/cpi.pdf [report and Table 2]

https://www.cnbc.com/2025/05/14/cnbc-daily-open-tame-cpi-in-april-banishes-stagflation-threat-for-now.html

https://www.sca.isr.umich.edu

https://ratings.moodys.com/ratings-news/443154

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2025

https://www.memorialdayfoundation.org/education/how-to-observe-memorial-day/

https://www.rd.com/article/memorial-day-poppies/

https://www.cmohs.org/recipients/lists/double-recipients

https://dma.mt.gov/MVAD/MVAD-Images/Coins-on-headstones-meaning.pdf

https://www.goodreads.com/quotes/7682393-heroism-doesn-t-always-happen-in-a-burst-of-glory-sometimes

The Markets

The winds of uncertainty are blowing, and the waters are choppy.

In recent weeks, United States stock markets saw steady gains, 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 and negotiations. Last week, President Trump announced a trade deal with the United Kingdom and, over the weekend, U.S.-China trade negotiations began. “With talks between the US and China about to start, trillions of dollars are hanging in the balance for American companies. The average member of the [Standard & Poor’s 500 Index] made 6.1 [percent] of its revenue from selling goods in China or to Chinese companies in 2024, according to an analysis from Bloomberg Intelligence’s Gina Martin Adams and Gillian Wolff,” reported Rita Nazareth of Bloomberg.

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.

NO, YOU DON’T NEED TO STOCK UP ON TOILET PAPER. During the pandemic, concerns about supply chains and shortages led some people to stock up on items like toilet paper. As it turns out, the frenzied buying may have been the cause of those shortages.

Today, people are concerned about items that are typically imported from other countries becoming scarce. Last week, Bloomberg published the “Ultimate Tariff Buying Guide” to help people understand “what to purchase right now, what to skip and what’s a maybe.” Claire Ballentine and Will Kubzansky of Bloomberg advised that “right now” purchases may include:

Kid stuff. A lot of the equipment parents rely on – car seats, strollers, cribs, toys – are made in China so prices may rise significantly. Parents don’t have to worry about disposable baby care items as “diapers, wipes and most infant formulas won’t see a huge impact from tariffs because the majority of these products are manufactured domestically.”

Computers, smart phones, and electronics. While these goods currently are exempt from reciprocal tariffs, they are subject to other types of tariffs. If you have a student headed to college in the fall who will need electronics or you’re considering replacing your current smartphone, tablet, or computer, you may want to accelerate the purchase.

Automobiles. “If you already planned to buy a car sometime in 2025, bringing your purchase forward a few months could save you thousands of dollars,” according to a source cited by Ballentine and Kubzansky.

It’s a good idea to be prepared for higher costs if you’re planning to travel outside of the United States, too. “Due to tariffs shaking global markets, the [U.S.] dollar has weakened this year. That downward trend shows no signs of subsiding, so international travelers should expect worse deals when scoping out a trip or traveling abroad,” reported Ballentine and Kubzansky.

Weekly Focus – Think About It
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained, you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
– Sun Tzu, Military strategist

Sources:

https://www.barrons.com/livecoverage/stock-market-today-05092025/card/the-market-had-a-banner-two-weeks-now-things-get-dicey–rHXi6aRToipIR0drAYQ2 or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-12-25-Barrons-Market-Banner-Two-Weekds%20-%201.pdf

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 or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-12-25-Bloomberg-S&P-500-Wavers%20-%203.pdf

https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20250507.pdf

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 or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-12-25-Barrons-DJIA-S&P-Nasdaq%20-%207.pdf

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2025

https://cnr.ncsu.edu/news/2020/05/coronavirus-toilet-paper-shortage/

https://www.bloomberg.com/news/articles/2025-05-08/what-to-buy-before-tariffs-take-effect?embedded-checkout=true or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-12-25-Bloomberg-Ultimate-Tariff-Buying-Guide%20-%2010.pdf

https://www.goodreads.com/author/quotes/1771.Sun_Tzu

The Markets

American companies did well in the first quarter.

During earnings season, publicly held companies tell investors how they performed during the previous quarter with a particular focus on earnings, which reflect company profits.

Currently, we’re more than halfway through earnings season, and companies in the Standard & Poor’s (S&P) 500 Index have reported solid performance results overall. “Both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of earnings surprises are above their 10-year averages,” reported John Butters of FactSet.

As of last Friday, 72 percent of S&P 500 companies had reported earnings, and the blended earnings growth rate was 12.8 percent. If earnings stay at this level, we will see a second consecutive quarter of double-digit earnings growth for the S&P 500, reported Butters.

While first quarter earnings were strong, it’s unclear whether future earnings growth will be as robust. “During the month of April, analysts lowered EPS [earnings-per-share] estimates for the second quarter by a larger margin than average…Analysts also continued to lower EPS estimates for [calendar year] 2025,” reported Butters.

The reasons for changing expectations may be related to two words that have been popping up more than usual on earnings calls: “tariffs” and “uncertainty”.

“Several companies noted that the uncertainty surrounding tariffs is making businesses hesitant about investment decisions. That means they are delaying stocking up on inventory (or in some cases, overstocking), hiring, and dealmaking,” reported Sabrina Escobar of Barron’s. “All the uncertainty has made it hard for companies to make accurate projections for the year ahead.”

Last week, major U.S. stock indexes rose. “As of Friday, the S&P 500 index had risen nine days in a row, its longest streak since 2004. It jumped 10.2% in that span – 2.9% of that in the past week – a remarkable performance given the cloud of uncertainty hanging over American businesses,” reported Avi Salzman of Barron’s.

Yields on most maturities of U.S. Treasuries moved higher over the week.

HONEY, I SHRUNK THE ECONOMY! Last week, there were a lot of headlines about the U.S. economy after the Commerce Department shared information showing the U.S. economic expansion stuttered in the first quarter of this year. From January to March, the U.S. economy contracted, -0.3 percent annualized, as measured by gross domestic product (GDP) adjusted for inflation.

The reasons for an economic contraction weren’t obvious. Many companies were doing well, and business investment was solid. Consumer spending slowed but remained healthy. Government spending dropped a bit, but the fly in the economic ointment was imports from other countries.

“An enormous surge in imports was the big outlier in this GDP report. Normally, big increases in imports rarely coincide with outright declines in headline GDP because stronger imports usually mean more spending, not less,” reported a source cited by Megan Leonhardt and Matt Peterson of Barron’s.

Why are imports part of U.S. productivity?

You may be scratching your head, wondering why imports – goods produced in other countries – are included when determining the value of all goods and services produced in the United States. The short answer is: They’re not.

Broadly, U.S. GDP is measured by adding up:

• Personal consumption expenditures (consumer spending)
• Investment (business expenditures, household purchases of homes)
• Government spending (mandatory and discretionary)
• Exports (goods made in the U.S. and shipped elsewhere)

The final step is subtracting imports, which are goods that were made elsewhere. Imports are deducted because they’re in consumption, investment, and government spending numbers. To understand what was produced in the United States, imports must be subtracted. The St. Louis Federal Reserve offered an example of how that works.

“…if $10,000 in imported parts are used in the production of a car in a U.S. factory (an “American” car) and the car is sold in the United States for $30,000, then the $30,000 counts as personal consumption expenditures; but $10,000 is subtracted to account for the value of the imported parts, so the effect on U.S. GDP is $20,000.”

The GDP report raised some interesting questions

The report about U.S. economic performance raised some questions that have yet to be answered. Why didn’t U.S. GDP reflect the purchase of imports? What happened to the imported goods? It’s possible the surge in imports was overestimated. It’s also possible spending and investment were underestimated, opined the source cited by Leonhardt and Peterson.

 We may have answers over the next two months. Last week’s report was the first estimate of economic growth, and it may have included data that was incomplete or will be updated. We’ll see two more estimates before the end of June.

For now, it may be enough to know that first quarter GDP appears to reflect “the anticipated impact of tariffs rather than an actual downturn,” as Randall Forsyth of Barron’s reported.

Weekly Focus – Think About It

“It’s funny: I always imagined when I was a kid that adults had some kind of inner toolbox full of shiny tools: the saw of discernment, the hammer of wisdom, the sandpaper of patience. But then when I grew up I found that life handed you these rusty bent old tools – friendships, prayer, conscience, honesty – and said ‘do the best you can with these, they will have to do’. And mostly, against all odds, they do.”
– Anne Lamott, Author

Sources:

https://insight.factset.com/sp-500-earnings-season-update-may-2-2025

https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_050225.pdf

https://www.barrons.com/articles/tariffs-earnings-calls-stock-ccab0e3b or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-05-25-Barrons-CEOs-Are-Saying-These%20-%203.pdf

https://www.barrons.com/articles/stock-market-rally-risk-91fd1c10?refsec=the-trader&mod=topics_the-trader or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-05-25-Barrons-Stock-Market-Winning-Streak%20-%20%204.pdf

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2025

https://www.bea.gov/sites/default/files/2025-04/gdp1q25-adv.pdf [report, Table 1)

https://www.barrons.com/livecoverage/inflation-gdp-economy-pce-data/card/why-the-u-s-economy-isn-t-as-weak-as-it-looks-0WgAY8LrRIT8X8X3fZQ1 or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-05-25-Barrons-Why-The-US-Economy-Isnt-as-Weak%20-%207.pdf

https://www.investopedia.com/terms/r/realgdp.asp

https://www.stlouisfed.org/publications/page-one-economics/2018/09/04/how-do-imports-affect-gdp

https://www.bea.gov/sites/default/files/2024-10/relia.pdf

https://www.barrons.com/articles/stock-market-economy-tariffs-0e9bf1d5?refsec=up-and-down-wall-street&mod=topics_up-and-down-wall-street or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/05-05-25-Barrons-Stocks-Are-Back%20-%2011.pdf

https://www.goodreads.com/quotes/159902-it-s-funny-i-always-imagined-when-i-was-a-kid