Five for Friday - May 9, 2025
Flat on the Year, Tax Leg, Stay in May, Gas, and 1873
1. Almost flat
As of Thursday’s close, the S&P 500 is down 3% for the year, while the S&P 500 Equal Weight (i.e., the “average” stock because the stocks with the largest market caps don’t have outsized influence in this version of the index) is down just 1%. Despite headline volatility from Washington and the ramifications of attempting to remodel the global trading system…the market is functionally flat on the year. This says a lot of things. For one, it indicates that investors are pricing in a trade war offramp before things get too bad. Time will tell if that is false hope, but it does keep a retest of the April 8 lows on the table. It also implies that market fundamentals were in pretty good shape coming into 2025 (e.g., with nearly 90% of S&P 500 companies having now reported earnings results for the first quarter of 2025, overall profit growth from a year ago is tracking at +14%). Finally, the market now being virtually flat on the year shows why it’s so risky to try to time the market based on headlines or perceived economic hazards. We may see another round of selling pressure—tariffs are still high and uncertainty is higher—but if we don’t, those who exited the market in early April may find it very difficult to put their money back to work. Stay the course.
2. Taxes
We’ve talked a lot recently about how Congress may add additional pro-growth provisions into the upcoming tax bill to offset tariff uncertainty. One such policy would allow businesses to expense 100% of their research and development (R&D) costs. This policy was in place until 2022, when it expired (due to how the 2017 Tax Cuts and Jobs Act was structured). Our partners at Strategas estimate that reintroducing this tax credit—and allowing it to be retroactively applied back to 2022—would be the equivalent of a 6% drop in the corporate tax rate. So, if stocks seem too resilient in the face of all the tariff headwinds, consider that it may be in part because the market is starting to price in a boost from stimulative fiscal policies like the one described above.
3. Sell in May and go away?
Not so fast! May to October has been the weakest six-month period over the last 75 years (with an average return of 1.8%), but that stretch of months saw double-digit returns in 2024, 2021, and 2020 (13.3%, 10.1%, and 12.3%). Seasonal patterns can be useful but won’t outweigh bigger market drivers. And missing a double-digit return in just a six-month window is not a good way to build long-term wealth.
4. Gas
Oil prices closed at multi-year lows this week after OPEC+, the cartel of oil-exporting countries, agreed to hike production for a second consecutive month. Falling oil prices are often considered a good indicator of economic weakness as softer demand for industrial inputs (e.g., oil, copper) implies a cooling economy, but the message is muddled this time by excess supply on the market. Low prices will disincentivize further overproduction and hamper the profits of energy companies, but U.S. consumers should see lower prices at the gas pump. Sub-$60 for a barrel of West Texas crude oil is consistent with sub-$3 for a gallon of gasoline, a psychologically important hurdle and a level that makes a meaningful difference for the consumer—both in terms of discretionary spending and inflation perception.
5. On this day
in 1873, a crash on the Vienna Stock Exchange (during which half of the listed stock corporations disappeared) sparked a widespread period of recession and deleveraging. Often called the first truly international financial crisis, the chaos ultimately resulted in the Panic of 1873 and the Long Depression (aka, the original Great Depression).
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