Daily market snapshot

• Stocks fall despite soft inflation data – U.S. equity markets closed lower on Wednesday, despite a weaker-than-expected inflation reading for May.* From a leadership perspective, most sectors of the S&P 500 finished the day flat-to-lower with the exception of energy, as rising geopolitical tensions between the U.S. and Iran weighed on sentiment and sent oil prices higher by more than 4% today.* Overseas, markets in Asia were higher overnight, boosted by progress in U.S. – China trade talks, while markets in Europe closed mostly lower.* Bond yields traded lower following the softer-than-expected inflation reading, particularly at the short end of the curve, with the 10-year Treasury yield finishing the day around 4.42% and the 2-year yield falling to around 3.94%.* 
   
• May inflation data softer than expected – Consumer price index (CPI) inflation was lower than expected in May, with headline CPI rising by 0.1% for the month and 2.4% on an annual basis, both below expectations.* Core CPI, which excludes food and energy, was also softer than expected, rising by 0.1% for the month and 2.8% on an annual basis.* Looking into the drivers, core services inflation slowed to a 0.2% monthly gain and rose by 3.6% on an annual basis, matching the April reading for the lowest annual gain since November 2021.* Notably, the May report showed little evidence of tariffs being passed on to consumers in the form of higher prices, with core goods CPI flat for the month and rising by a muted 0.3% on an annual basis.* While the recent downtrend in inflation has been encouraging, we believe tariffs could put upward pressure on prices in the months ahead. However, with trade tensions de-escalating in recent weeks, businesses could be choosing to absorb higher near-term costs related to tariffs, with the hope that tariff rates will trend lower over time. Under this environment, we expect the Federal Reserve to continue easing monetary policy, but at a measured pace, perhaps delivering one to two interest-rate cuts in the back half of the year.
   
• U.S. – China trade talks progress – After two days of negotiations in London, U.S. and Chinese policymakers have reached an agreement in principle to bilaterally ease trade restrictions.* While details around the agreed-upon framework remain vague, reports suggest the focus is on the U.S. reducing export controls of technology goods to China in exchange for access to rare-earth minerals.* The official framework will still require approval from U.S. President Donald Trump and Chinese President Xi Jinping before implementation; however, initial reports suggest the U.S. tariff rate on imports from China will be 55%, which is composed of the 30% tariff imposed earlier this year and the existing 25% duties.* While the agreement appears to be focused more on specific products, it fits with the broader trend of de-escalating trade tensions over recent weeks, which has provided a boost to equity markets, with the S&P 500 now roughly 2% off its February 19 all-time high.* In our view, we're likely past peak trade-policy uncertainty, but volatility could resurface over the coming weeks, particularly as we approach the expiration of the 90-day pause from the April 2 tariff announcement on July 9. However, with peak uncertainty likely behind us, and economic data proving resilient over recent weeks, we believe opportunities remain attractive in equity markets, and we recommend investors consider overweighting equity relative to fixed income, with a focus on U.S. stocks over international. To view our full suite of opportunistic portfolio guidance, checkout our Monthly Portfolio Brief.

Brock Weimer, CFA
Investment Strategy

^*FactSet 

• Stocks close modestly higher – U.S. equity markets traded higher on Tuesday, with investors eyeing ongoing U.S. - China trade talks in London. Leadership was broad-based, with most sectors of the S&P 500 finishing the day flat-to-higher and led by the energy and consumer discretionary sectors.* On the economic front, the NFIB small business index ticked higher in May after declining in four consecutive months, signaling an improvement in business sentiment amid the recent easing in trade tensions.* Overseas, European markets were mixed following an improvement in the eurozone Sentix economic index, while markets in Asia were mixed overnight.* Longer-term bond yields traded slightly lower, with the 10-year Treasury yield finishing around the 4.47%, while the 2-year yield was little changed at around 4%.*
   
• Key inflation data on the horizon – Inflation will be in focus for investors this week, with consumer price index (CPI) inflation for May out tomorrow. Expectations are for headline CPI to rise by 0.2% for the month and 2.5% on an annual basis, while core CPI is expected to see a monthly gain of 0.3% and rise by 2.9% on an annual basis.* Despite concerns that tariffs would create a short-term boost to prices, there has been little evidence of this happening through April. In fact, the three-month annualized change in core CPI was 2.1% in April, the lowest reading since July 2024.* Despite the downward trend in inflation in recent months, we believe the impact of tariffs will surface in inflation data over the coming months, primarily through a spike in goods prices. However, we expect tariffs to serve a one-time increase in the level of prices, as opposed to an ongoing source of inflation that would cause long-run inflation expectations to become unanchored. Thus, we believe the Federal Reserve rate-cutting cycle has been delayed, not cancelled, with the Fed likely to deliver another one to two interest-rate cuts in the back half of 2025.
   
• Trade talks remain in focus – Trade policy remains in focus, with U.S. and Chinese policymakers continuing discussions in London on Tuesday. Reports suggest that talks thus far have been productive, with the initial focus on the U.S. potentially easing technology export controls in exchange for rare-earth minerals, although details remain vague.* With the 90-day pause of the April 2 tariff announcement quickly approaching, the S&P 500 has rallied by more than 20% since the April 8 low and is within striking distance of the February 19 all-time high.* In our view, uncertainty on trade policy is likely to remain as we approach the July 9 expiration date and the August 12 expiration date of the 90-day tariff pause with China. However, we believe that peak trade-policy uncertainty is likely behind us, which should help create a more conducive environment for businesses to plan for investment spending and hiring, in our view. From an investment perspective, we continue to recommend investors consider overweighting equities relative to fixed income, with a focus on U.S. stocks over international. To view our full suite of opportunistic portfolio guidance, checkout our Monthly Portfolio Brief.

Brock Weimer, CFA
Investment Strategy

^*FactSet 

• Stocks start the week higher as trade remains in focus – Equity markets rose on Monday as U.S. and China officials met in London. Trade talks focused on easing tensions around technology and rare earth minerals, with additional negotiations scheduled for tomorrow.* Consumer discretionary and materials stocks posted the largest gains, while the utility and financial sectors were laggards. In international markets, Asia was mostly higher, despite China export growth for May missing expectations. China turned to other markets to offset a 34% drop in shipments to the U.S., the largest monthly decline since the COVID-19 pandemic.* Europe was broadly lower*. The U.S. dollar declined against major international currencies. In commodity markets, WTI oil traded higher, extending gains in recent weeks.*
   
• Bond yields tick down – Bond yields fell, with the 10-year Treasury yield at 4.48%. Concerns over government deficits and debt have helped drive bond-market volatility higher in recent months, though yields have pulled back from their late-May peak. Bond markets continue to price in expectations for two Fed interest-rate cuts this year and an additional two next year**, about in line with the Fed's own forecast.*** While the potential for higher inflation over the coming months due to tariffs should keep the Fed on the sidelines a while longer, lower interest rates should help reduce borrowing costs for consumers and businesses, which would be supportive of the economy and corporate profits, in our view.
   
• Markets await CPI inflation this week – Consumer price index (CPI) inflation for May will be released on Wednesday, with forecasts calling for inflation to rise to 2.5% annualized, up from 2.3% through April.* Core CPI, which excludes more-volatile food and energy prices, is expected to tick up to 2.9%, compared with 2.8% the prior month.* While both measures have declined for three consecutive months, estimates pointing to a reversal likely reflect the early impact of tariffs flowing through the supply chain to consumer prices, in our view. We expect tariffs to put some upward pressure on inflation, as higher import costs are at least partially passed along to consumers. However, most of this impact should be near-term price hikes that aren't an ongoing driver of inflation, in our view. Bond markets are pricing in inflation of about 2.31% over the next 10 years, indicating that long-term inflation expectations appear to remain well anchored.****

Brian Therien, CFA
Investment Strategy

^{*FactSet **CME Fedwatch ***U.S. Federal Reserve ****Federal Reserve Bank of St. Louis}

• U.S. equities rally following healthy jobs data – U.S. equity markets closed higher on Friday, following a better-than-expected payrolls report for May. Nonfarm payrolls rose by 139,000 in May, above expectations for a 130,000 gain, while the unemployment rate held steady at 4.2%.* Leadership was broad-based, with all 11 sectors of the S&P 500 finishing the day higher, led by energy and communication services.* Bond yields rose following the jobs data, with the 10-year Treasury yield closing around 4.5%, while the 2-year yield climbed to 4.04%, as the healthy labor-market report suggests the Fed can continue to take a patient approach to further interest-rate cuts.* For the week, stocks finished well into positive territory, with the S&P 500 up by roughly 1.5% and posting a weekly gain for the fifth time out of the past seven weeks.*
   
• Payroll growth exceeds expectations; unemployment holds steady – The May jobs data showed that nonfarm payrolls rose by 139,000 for the month, above expectations for a 130,000 rise.* Despite signs of healthy job growth in May, payroll growth for April and March were revised lower by a total of 95,000, taking some of the shine off of the better-than-expected May report.** In addition to the payroll data, the unemployment rate held steady at 4.2% for the third consecutive month, as a decline in the household measure of employment was offset by a decline in the labor force.* Overall, we'd characterize today's report as evidence that labor-market conditions continue to ease but remain healthy. From a monetary-policy standpoint, we believe today's report gives the Fed further reason to hold rates steady in the near term and assess the economic impact of recent policy changes. In our view, the Fed will resume interest-rate cuts in the back half of this year.
   
• Strong first-quarter earnings season winds down – First-quarter earnings season is winding down, with tech-giant Broadcom and athletic-apparel retailer Lululemon among the last companies in the index to report first-quarter results yesterday. Both companies modestly exceeded sales and earnings expectations, closing out what's been a strong earnings season for U.S. companies. Roughly 78% of companies in the S&P 500 reported earnings that exceeded analyst expectations, with an average upside surprise of 8.3%.* The S&P 500 is set to post earnings growth of nearly 13% in the first quarter, marking the third time in the past four quarters the index has seen double-digit earnings growth.* While earnings estimates have been revised lower for the quarters ahead, full-year estimates are still calling for earnings growth of around 9% for the S&P 500.* In our view, single-digit earnings growth is attainable in 2025, given the resilient economic backdrop, which should offer support to equity markets amid the uncertain policy environment.

Brock Weimer, CFA
Investment Strategy

^{*FactSet **Bureau of Labor Statistics}

• U.S. equity markets stumble – U.S. stocks were down today, led by a 15% decline in Tesla* after President Trump threatened to cancel government contracts and subsidies for the auto and clean energy company*. This undermined a market rally seen earlier in the day following reports of a constructive phone call between U.S. President Trump and Chinese President Xi Jinping on trade. Trump commented after that "we're in very good shape with China and the trade deal," helping to raise hopes that we may see a further cooling in trade tensions between the world's largest economies. These sentiments helped support a generally better tone in international equity markets, in our view, with Canadian and European stocks delivering small gains by their respective closes. U.S. government bond yields meanwhile ended the day modestly higher, consistent with the small increases in yields seen across most sovereign bond markets.
   
• Signs of the trade war becoming clearer in U.S. data – The surge in U.S. imports seen in early 2025, as companies looked to front run tariffs, is starting to reverse.* A collapse in imports in April triggered a significant tightening in the U.S. trade deficit, which is likely to be sustained over the coming months. This should deliver a material boost to second-quarter U.S. GDP growth, in our view, but looking through this volatility, the economy appears to be feeling the effect of dramatic shifts in trade policy. Initial unemployment insurance claims increased again last week, and continuing claims remain high, potentially pointing to a cooling labor market. Similarly, according to Challenger, job-cut announcements continue to run at elevated levels, with more sectors reporting layoffs. These data appear to be adding to uncertainty around the health of the labor market ahead of tomorrow's U.S. nonfarm-payrolls report.
   
• Jobs data in focus – Markets will be watching the U.S. labor report tomorrow carefully for signs that the cracks emerging in ADP hiring data and unemployment-insurance claims this week are visible in the benchmark labour-market release. The consensus is for payroll gains to slow in May, but remain relatively healthy at 125,000, and for the unemployment rate to be unchanged at 4.2%.* However, in our view, a downside surprise would be a concern for the Fed, which has taken comfort from the resilience of the economy in 2025 thus far, especially should inflation data start to accelerate in the coming months as we expect. Against this challenging backdrop we think the Fed will remain on hold until September before cutting rates, consistent with market pricing* at present.

James McCann
Investment Strategy

^*Bloomberg