Weekly Update: Solid Monthly Advance in May

Jack Brown, CFA & Casey Farrow

June 02, 2025

Weekly Market Update

June 2, 2025

Outlook

The Bureau of Economic Analysis (BEA) provides data for economic growth, primarily gross domestic product (GDP). When GDP is calculated, they typically remove inflation to show what's called the real GDP. This is basically a quarterly number that is revised periodically.

The BEA also provides inflation data which is called Personal Consumption Expenditures (PCE). This data is provided monthly. When we dive deeper into the PCE numbers, we can look at sub-components of inflation like housing.

As you may recall, housing has been held up as a rather sticky and slow-moving component of inflation. Logically, housing related inflation became rather high when housing prices were also high.

In April, PCE data showed that housing inflation is now 4.0%, which is well off the high of 8.2% in March of 2023. This is good news and is much closer to the Fed’s long-term 2.0% inflation target.¹

As discussed below, overall inflation seems to be no longer a primary risk in terms of capital markets. Stable and predictable prices are rather important for long-term economic growth.

. . .

In May 2025, the U.S. equity market advanced solidly with the S&P 500 rising 6.2%, the tech-heavy Nasdaq Composite surging 9.6%, and the blue-chip Dow Jones Industrial Average gaining 3.9%. This marks the best monthly performance for the S&P 500 and Nasdaq since November 2023.² The rally was boosted by easing trade tensions (specifically between the U.S. and China, along with the Middle East), strong corporate earnings, and renewed optimism for artificial intelligence (AI) stocks.

Tariff announcements continue to dominate the headlines. As a positive for the markets, on May 25th the administration delayed 50% tariffs on European Union imports until July 9th. The tariffs were originally set to take effect on June 1st, however, Trump agreed to an extension after the European Commission President Ursula von der Leyden requested more time for negotiation.³

In other tariff news, Trump accused China of violating their trade agreement this past Friday. Details were not provided, although U.S. Trade Representative, Jameison Greer, claimed China is “slow rolling their compliance” and that some critical minerals have not returned to levels that officials were expecting. The Chinese Ministry of Commence announced in a statement on Monday that the U.S. introduced discriminatory restrictions, noting new guidelines on AI chip export controls and withdrawal of Chinese student visas. Beijing also denied claims that China breached the trade agreement reached last month that resulted in the temporary reduction of reciprocal tariffs between both countries.⁴ Developments are expected to continue.

On the economic front, the markets received an updated reading on a key inflation report, the Personal Consumption Expenditures (PCE). The Federal Reserve’s preferred inflation gauge shows headline inflation rose 2.1% year-over-year in April, coming in less than expected and at the lowest level in eight months. Core PCE, which excludes the volatile food and energy categories, increased 2.5% year-over-year.

The report suggests that inflation is trending closer to the Fed’s 2.0% target, however the impact of recent tariffs has not fully been reflected in the data. Some economists predict that inflation could rise later in the year as trade policies are eventually passed on.⁵

[1]https://www.calculatedriskblog.com/2025/05/pce-measure-of-shelter-decreases-to-42.html

[2]Why the S&P 500 and Nasdaq Just Had Their Best Month Since 2023

[3]Trump says he will delay 50% tariffs on EU imports until July 9

[4]China Rejects Trump’s Accusation That It Violated Trade Truce - The New York Times

[5]Inflation rate slipped to 2.1% in April, lower than expected, Fed’s preferred gauge shows

Upcoming Reports

Monday: Manufacturing PMI, ISM Manufacturing PMI, Fed Chairman Powell Speaks

Tuesday: JOLTs Job Openings

Wednesday: ADP Nonfarm Employment Change, Services PMI, ISM Non-Manufacturing PMI, Beige Book

Thursday: Initial and Continuing Jobless Claims

Friday: Average Hourly Earnings, Nonfarm Payrolls, Participation Rate, Unemployment Rate

Market Performance Stats

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