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”Markets in Focus
Timely analysis of market moves and sectors of opportunity
The U.S. Court of International Trade blocked the majority of U.S. President Donald Trump’s tariffs for less than 24 hours before a federal appeals court paused the ruling.
The U.S. Federal Reserve (Fed) stressed that its path of policy will depend entirely on incoming economic information.
Volatility will likely increase as budget legislation evolves through the senate and the legality of Trump’s tariffs are questioned.
Despite the markets being closed on Memorial Day, last week was one of the busiest news weeks of the year. Markets opened on Tuesday with a mini trade war between the United States and the European Union, which had begun after Friday’s close.1
“The most narrative-altering news broke on Wednesday, when the U.S. Court of International Trade (CIT) blocked Trump’s International Emergency Economic Powers Act (IEEPA)-induced tariffs,” said Joey Del Guercio, CFA, Market Strategy Research Associate at Raymond James Investment Management. These were the fentanyl-focused tariffs and “reciprocal” tariffs announced on April 2, which affected more than 60 U.S. trading partners.
“This was huge news for less than 24 hours, and then a federal appeals court paused the CIT’s ruling, restoring Trump’s ability to leverage IEEPA and reinstate the tariffs,” Del Guercio said.
The ruling may have overshadowed gross domestic product (GDP) data, a Personal Consumption Expenditures (PCE) Price Index update, and an earnings report from NVIDIA, the largest company in the world by market capitalization. Each of these releases can command investor attention, but Del Guercio feels like they were almost entirely deprioritized last week. He believes that last week’s changing priorities were a reminder that uncertainty is here to stay.
“While I expect this uncertainty to persist, it feels like the market is getting increasingly calibrated to all of the noise, which I expect to continue going forward,” said Del Guercio. “Despite all the uncertainty in the news, the CBOE Volatility Index (VIX) is only mildly elevated, and the S&P 500 Index had its best month since 2023 and its best May since 1990.”
Following its torrid rally from the depths of the Liberation Day aftermath, the S&P 500 Index remains down 4% from its February all-time high, and Del Guercio thinks it’s reasonable to expect some short-term consolidation in equities. Given this outlook, he maintains that investors would be wise to avoid chasing this market higher. Instead, they might consider remaining patient and opportunistically building positions on pullbacks.
“From my view, it’s increasingly apparent that the Fed is in absolutely no rush to cut its policy rate,” said Del Guercio. “Last week, both core and headline inflation showcased further disinflation, and super core PCE declined month-over-month for the first time since 2020.” However, given all the potential first-, second-, and third-order effects of trade and greater fiscal policy, Del Guercio said that investors have acquired little to none of the clarity that the Fed finds necessary to cut interest rates.
Del Guercio said that another event failing to receive the coverage it deserved last week was U.S. President Donald Trump meeting with Fed Chair Jerome Powell for the first time since inauguration day. Following the closed-door meeting, the Fed put out a brief statement explicitly stressing that “the path of policy will depend entirely on incoming economic information.” Then, the White House press secretary reiterated the Trump administration’s belief that the Fed Chair is making a mistake by not lowering interest rates.
“In my opinion, the Fed is in a comfortable position to wait, and Powell is under no real political pressure to cut rates,” said Del Guercio. “Should a recession materialize, the man who put tariffs on 60 countries would likely get the blame, not the man who kept rates steady in the face of above-target inflation and resilient growth.”
Del Guercio thinks that a sustained deterioration in the labor market would be the biggest inspiration for a Fed cut. This week’s labor data from the Job Openings and Labor Turnover Survey (JOLTS), ADP® National Employment Report™, and Non-Farm Payrolls (NFP) report will hold important insights.
Del Guercio said that last week’s earnings results from NVIDIA capped off a first quarter in which S&P 500 Index constituents reported earnings that were broadly better than expected. 10 of the 11 sectors in the S&P 500 Index posted earnings per share (EPS) growth that exceeded consensus pre-season earnings estimates. The broader index posted its second straight quarter of double-digit EPS growth. Over 60% of the companies reported a positive revenue surprise, and more than three quarters of the companies posted a positive EPS surprise.
“NVIDIA’s earnings were another reminder that Artificial Intelligence (AI) is here to stay. The massive amount of capital expenditure (capex) dollars being spent to build out the AI ecosystem are persistent with interest in the space accelerating,” said Del Guercio. “Despite all the talk about prudent capital decision planning in the face of Trump’s tariffs, capex beneficiaries continue to grow their backlogs.”
Now that the market is firmly between earnings seasons, Del Guercio believes that investor focus will increasingly shift towards policy news and long-term investment themes, which are somewhat interconnected. This was demonstrated in headlines from two weeks ago claiming that Trump’s nuclear power policy sent myriads of related equities up +20-30% in a single day.
“Other thematic areas like AI enablers, the hyperscalers, cybersecurity, and defense have already corrected,” said Del Guercio. “With sentiment on the mend, I think it makes sense to consider leaning into long-term megatrends by opportunistically buying on dips.”
Del Guercio expects policy uncertainty to continue driving the chief market narrative. Volatility is likely to increase from here as U.S. budget legislation evolves through the senate and the legality of Trump’s tariffs are questioned. If Trump loses his IEEPA privileges, he has other avenues to pivot to, including Section 301 and Section 232.
“Fade the short-term, whiplash-inducing news flow and consider leaning into long-term durable market trends that are agnostic to short-term policy narratives — like AI and defense spending. Above all else, consider keeping portfolios diversified to not get caught offsides should volatility spike,” said Del Guercio.
Small- and mid-caps. While last week’s court decisions weren’t the clean relaxation of trade policy Del Guercio was looking for, he thinks the continued progress could suppress recession fears in the short-term, which have been a major hurdle down market cap. “Small caps continue to disappoint, but I think the risk/reward is too favorable to ignore the gaping valuation differential versus large caps,” Del Guercio said. “Mid caps continue to perform well year to date, and I expect this strong performance to continue as quality-biased investors move down market cap.”
Industrials. Del Guercio thinks it still makes sense to consider leaning into cyclicals and higher beta securities broadly when dips present themselves, but he is largely focused on industrials. In his opinion, industrials have somewhat sneakily become the second-best performing S&P 500 Index sector year to date, only lagging utilities. Many industrial companies are levered to long-term trends with multi-year tailwinds, like aerospace and defense, domestic manufacturing, and AI’s expeditiously growing infrastructure.
International. Del Guercio made the case for ratcheting up exposure to international equities as markets continue to question U.S. exceptionalism. To be clear, the U.S. is still his favored region, but a continuation of the dollar’s decline and elevated domestic yields bode well for international equities. “With the U.S. still comprising about 63% of the MSCI All Country World Index, large gains can accrue to markets that catch a marginal reallocation away from domestic equities,” said Del Guercio. Despite their strong performance, financials in general and mainly European defense names remain his favored areas of interest.
This week focuses on labor data: JOLTS on Tuesday, the ADP Employment Report on Wednesday, and weekly jobless claims, productivity, and unit labor costs data on Thursday. The Non-Farm Payrolls report will be released on Friday along with unemployment data. U.S. Manufacturing and Services Purchasing Managers’ Index (PMI) data will also be released this week. And on Thursday, the European Central Bank will announce its policy rate decision.
1 Unless otherwise indicated, all data cited is sourced from Bloomberg as of May 30, 2025.
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Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Investing in bonds involves risks that may adversely affect the value of your investment such as inflation risk, credit risk, call risk, interest rate risk, and liquidity risk, among others. The two most prominent factors are interest rate movements and the credit worthiness of the bond issuer. Investors should pay careful attention to the types of fixed income securities that comprise their portfolios and remember that, as with all investments, there is the risk of loss of capital.
Bond Ratings: Ratings are by Moody’s, S&P, and/or Fitch. Ratings provided by nationally recognized statistical rating organizations, also called ratings agencies, are appraisals of a particular issuer’s creditworthiness, including the possibility that the issuer will not be able to pay interest or repay principal. Ratings are not recommendations to buy, sell or hold a security, nor do ratings remove market risk. Securities with the same rating can actually trade at significantly different prices. In addition, ratings are subject to review, revision, suspension, reduction or withdrawal at any time, and a rating agency may place an issuer under review or credit watch. Additionally, Fitch reports are available for municipal bonds. More about ratings is available at moodys.com, standardandpoors.com, and fitchratings.com.
Definitions
The ADP® National Employment Report™ is published monthly by the ADP Research Institute® in close collaboration with Moody’s Analytics. The ADP® National Employment Report™ provides a monthly snapshot of U.S. nonfarm private sector Employment based on actual transactional data.
AI Enablers are individuals who bring together actionable knowledge about AI’s possibilities and have a deep understanding of their own business.
Artificial intelligence (AI) is technology that enables computers and machines to simulate human learning, comprehension, problem solving, decision making, creativity and autonomy.
Beta is an indicator of the price volatility of a stock or other asset in comparison with the broader market. It suggests the level of risk that an investor takes on in buying the stock. The higher the beta number, the higher the risk.
Capital expenditures, or capex, are monies used by a company to buy, improve, or maintain physical assets such as real estate, facilities, technology, or equipment, and may include new projects or investments.
Consolidation is a term used in technical analysis to describe when stocks reverse previous gains (or losses) to stay within well-defined trading levels.
Core inflation is measured by the Personal Consumption Expenditures (PCE) excluding Food and Energy, Price Index, also known as the core PCE price index, is a measure of the prices that U.S. consumers pay for goods and services, not including two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index, released monthly by the U.S. Department of Commerce Bureau of Economic Analysis, measures inflation trends and is watched closely by the U.S. Federal Reserve as it conducts monetary policy.
Core services inflation excluding shelter, sometimes called “super core” inflation, is a version of core inflation that excludes prices for food, energy, and housing. Core inflation includes a measure of housing services, which is what households pay for rent or the equivalent for those who own their homes.
Disinflation refers to the temporary slowing of the pace of price inflation and describes what happens when the inflation rate is marginally lower over the short term. Disinflation refers only to the rate of change in the rate of inflation. In this, it is distinct from inflation and deflation, which describe the direction of prices.
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
Fiscal policy refers to the tax collection and spending a government uses to influence its country’s economy. Fiscal risk can arise from, among other things, excessive deficit spending, which consists of government spending over a specific period of time that exceeds the revenues that the government takes in for the same period. High levels of debt and large deficits can push interest rates higher and limit a government’s ability to respond to economic downturns.
Gross domestic product (GDP) is the total value of goods and services provided in an economy during a specified period, often one quarter or one year.
Headline inflation is the raw inflation figure reported in relation to the Consumer Price Index (CPI), which is released monthly by the Bureau of Labor Statistics (BLS).
Hyperscalers refers to the largest cloud computing providers that can provide massive amounts of computing resources and storage at enterprise scale.
The International Emergency Economic Powers Act (IEEPA) provides the President broad authority to regulate a variety of economic transactions following a declaration of national emergency. IEEPA, like the Trading with the Enemy Act (TWEA) from which it branched, sits at the center of the modern U.S. sanctions regime.
The Job Openings and Labor Turnover Survey (JOLTS) program produces monthly data on job openings, hires, and separations compiled by the U.S. Bureau of Labor Statistics. The survey’s job openings rates consider month-to-month changes in the number of job openings reported on both a state and national level.
Levered, in the context of companies that are levered to long-term trends with multi-year tailwinds, means companies with earnings that directionally follow the expansion of those themes.
Liberation Day is a term used by President Donald Trump to refer to April 2, 2025, when he announced a wide range of unexpectedly high tariffs on many U.S. trading partners, triggering a global selloff of risk assets.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
Nonfarm payroll refers to the number of jobs in the private sector and government agencies. It excludes farmworkers, private household employees, proprietors, nonprofit employees, and actively serving military. The nonfarm payroll numbers are reported monthly to the public through the closely followed employment situation report, which details changes in unemployment by sector and demographic and new jobs added within the economy.
The United States Court of International Trade, established under Article III of the Constitution, has nationwide jurisdiction over civil actions arising out of the customs and international trade laws of the United States.
The payroll report, officially known as the Employment Situation Summary, is a monthly U.S. Bureau of Labor Statistics (BLS) report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.
The Personal Consumption Expenditures (PCE) Price Index is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The PCE price index, released monthly by the U.S. Department of Commerce Bureau of Economic Analysis, is known for capturing inflation or deflation across a wide range of consumer expenses and reflecting changes in consumer behavior.
A pullback is a temporary pause or drop in the price of a security that previously had been rising.
The Purchasing Managers’ Index (PMI) measures the prevailing direction of economic trends in the manufacturing sector. It is created by the Institute for Supply Management (ISM), and consists of an index summarizing whether market conditions as reported in a monthly survey of supply chain managers are expanding, staying the same, or contracting.
A reciprocal tariff is a tax or trade restriction that one nation imposes on another on a tit-for-tat basis in response to a trade-restriction actions taken by the nation that is the subject of the reciprocal tariff.
Under Section 232 of the Trade Expansion Act of 1962, the head of any department or agency, or any “interested party” may request that the Secretary of Commerce investigate the effects of a specific import on U.S. national security.
Section 301 of the Trade Act of 1974 grants the Office of the United States Trade Representative (USTR) a range of responsibilities and authorities to investigate and take action to enforce U.S. rights under trade agreements and respond to certain foreign trade practices.
Super core PCE, sometimes called core services inflation excluding shelter, is a version of core inflation that excludes prices for food, energy, and housing. Core inflation includes a measure of housing services, which is what households pay for rent or the equivalent for those who own their homes.
The acronym TACO, meaning “Trump always chickens out,” describes an investment approach in response to Trump’s tariff policies. TACO trade describes many investors’ strategy to buy into the market that dips when Trump announces steep tariffs on the assumption that he will back off his tariff order, and the market will rebound.
Tailwind is a term used to describe events or market forces that exert a positive influence on an investment’s performance. The opposite of a tailwind is a headwind, which contributes to an investment’s underperformance.
U.S. exceptionalism or American exceptionalism is an idea centered on the notion that the United States is a unique and even superior nation as a result of historical, ideological, religious, and/or, in the context of finance, economic reasons. Proponents of American exceptionalism often expect or advocate for the United States to occupy or play a leading role in global affairs.
Indices
The CBOE Volatility Index, or VIX, is a real-time market index representing the market’s expectations for volatility over the coming 30 days. Investors use the VIX to measure the level of risk, fear, or stress in the market when making investment decisions.
The MSCI ACWI (All Country World Index) ex USA Index captures large- and mid-cap representation across 22 of 23 developed markets countries (excluding the United States) and 24 emerging markets countries. With 2,228 constituents, the index covers approximately 85% of the global equity opportunity set outside the United States. Developed markets countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the U.K. Emerging markets countries include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The S&P 500 Index measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 98% of the total market capitalization of the Russell 3000® Index.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”).© LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-750550 Exp. 10/2/2025
