Five for Friday - May 30, 2025

Artificial Intelligence, May Day, Labor Market, Tariff Tweaks, and Space Race

1. AI

Artificial intelligence is one of the most important themes in markets and the economy today, and its most important bellwether is Nvidia, the company with a dominant market share in providing the world with AI infrastructure (i.e., gold rush “picks and shovels”). It is also the largest public company, comprising over 6% of the S&P 500 (giving it as much influence over index returns as the smallest 200 companies combined). The company released a strong quarterly earnings report this week, reaffirming investor enthusiasm for the AI theme. The investment in technology infrastructure to support ever more sophisticated AI models can be seen in the economic data, as well (see right). The return on investment in dollar terms is the big question—which is why DeepSeek’s “cheap” model released in late January was such a shock moment for the industry—but the return on investment in terms of compute power is hard to argue with (see takeaway #1 from Stanford’s AI Index Report). Technology stocks can be volatile (see: 2022), but AI is not going anywhere any time soon.  

2. Today

is the last trading day of May, and despite a wild ride, the S&P 500 is roughly flat on the year. Here’s to hoping we close in the green today because over the last 75 years, when stocks were positive through May, the average return for the final 7 months of the year was 7.5% (with stocks positive 81% of the time). However, when the market was negative through May, the average return for the final 7 months of the year was -0.5% (and positive just 52% of the time).

3. Jobs

The US job market has held up well in recent years despite a variety of shocks—inflation, interest rates, trade wars, etc.—and unemployment remains historically low even today. But that doesn’t mean things are perfect, and there are signs that new entrants into the job market are struggling. Though consumer confidence jumped in May, the percentage of people saying jobs were “hard to get” matched its highest level since the pandemic chaos of 2020-21 and the unemployment rate for recent college graduates is at its highest since July 2021. Even Teen Vogue is weighing in. Claims for unemployment insurance remain low, in part because companies may be reticent to lay people off (hiring and training is expensive) and in part because the gig economy is sizzling. It’s all enough to keep consumer spending afloat, but if new hiring is being stymied by high rates and trade uncertainty, it will eventually weigh on America’s economic dynamism and the younger generation’s earnings power—especially with student debt collection back on. We’ll be monitoring closely.

4. Tariffs

Some reporting this week on firms using a little-known legal loophole—the “first sale rule”—to ease their tariff burden. The rule states that for some goods imported via a multi-leg transaction (i.e., foreign factory à foreign middleman à US importer), the tariff can be calculated using the price paid on the original sale (i.e., what the factory charges the middleman). How material this rule might be at a macro scale is unclear, but it yet again hammers home the main reason we invest in stocks: Companies are not static—they are constantly adapting to be as profitable as possible in whatever environment they find themselves in. Investors are, over time, rewarded by the profit motive inherent to capitalism.

5. On this day

in 2020, SpaceX became the first private company to successfully launch astronauts into space when the Endeavour set course from Merritt Island, Florida to the International Space Station. The accomplishment is a landmark achievement for private enterprise in the space economy…and highlights the broad-based growth opportunity in the starry sky above us. The World Economic Forum forecasts that the space economy will grow to a size of $1.8 trillion by 2035, “up from $630 billion in 2023 and growing at an average of 9% per annum—well above the growth rate of global GDP.”  

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This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.

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