Market Update: May 12, 2025

Last week, the Federal Reserve kept policy interest rates unchanged, as expected, along with mixed economic data. Within the minimal data released last week, ISM services rose a bit, further into expansion.

Equities were mixed last week, with declines in the U.S. large cap offset by gains in small cap and in Europe. Bonds pulled back with higher interest rates, with falling recession fears. Commodities were also mixed, with gains in energy and precious metals.

U.S. large cap stocks fell back last week, while small caps saw gains. Sector results were mixed, with gains of a percent in industrials and consumer discretionary offset by a -4% drop in health care from several disappointing quarterly reports. Real estate also fell back by nearly a percent, due to higher yields. These results came along with an improvement in sentiment surrounding apparent progress the U.S. administration is making toward lowering quoted maximum tariffs last month. This included a Thursday announcement of a trade deal reached with the U.K. in addition to expected progress with Chinese negotiations taking place in Switzerland, although the final outcome for that key relationship remains quite unclear. (S&P futures were up several percent as a slashing of tariffs was announced this morning.) Congressional discussions about extending the current tax policy set to expire at the end of 2025 has also been ramping up, with rumors mixed about the imposition of a higher rate on millionaire earners.

Foreign stocks were similarly mixed, with gains in Europe and Japan offset by declines in the U.K. Trade policy with the U.S. continued to drive sentiment, with a focus on effects on domestic economies. The Bank of England lowered their key interest rate by -0.25% to 4.25% (in a close 5-4 vote, as is often the case in their meetings, but reduced the odds of future cuts). Norway and Sweden held rates steady. On the other end, in EM, the central bank of Brazil hiked rates by 0.50% to 14.75%. In EM, gains in China, Brazil, Mexico, and Turkey were offset by a sharp drop in India, due to their escalating military conflict with Pakistan.

Bonds lost some ground last week as interest rates ticked higher, along with recession fears abating a bit along with optimism for a better trade outcome. Corporates fared better than governments, with floating rate bank loans faring positively. Foreign developed markets fared negatively as well, coupled with a stronger U.S. dollar.

Commodities rose overall for the week, led by energy and precious metals, the latter of which continued to rally with uncertainty around global trade outcomes, while agriculture fell back. Crude oil rose over 4% last week to $61/barrel, as optimism over trade talks reduced fears of recession-related weaker demand. The lower oil price is a negative for the commodity asset class, but generally a positive everywhere else as an economic input, including downward pressure on inflation measures.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.