June 9, 2025

U.S. equity markets rebounded sharply in May as strength in Q1 earnings reports for large cap stocks was welcomed by investors. The broad market, as measured by the S&P 500 Index, gained 6.3%. The rally was led by large-cap and mid-cap growth issues; and despite what would have been a great monthly result for small-cap shares (up mid-single digits), they lagged their larger peers once again.  Technology (+10.9%), communication services (+9.6%), and discretionary (+9.4%) were the best performing sectors.  Health care (-5.6%), energy (+1.0%), and real estate (+1.0%) were the worst performing sectors.

The tariffs and complicated trade talks/negotiations continue to plod along as issues in the minds of investors; however, it seems tax and budget items may be moving to the forefront.  The tax/spending reconciliation bill was passed by the House and is now in hands of Senate with a (hopeful) target of landing on the President’s desk by July 4.  Meanwhile, selected macro “hard” data –durable goods, personal consumption, are showing signs of starting to soften, although the April employment report was stronger than expected and the unemployment rate remained unchanged. The Fed remains in “wait and see” mode and is in no hurry to cut rates until the labor market weakens.