Weekly Economic Update: June 4, 2025
Presented by Nicholas Wealth Management
Tariffs delayed are tariffs denied
Markets opened the week after the Memorial Day holiday with a bang as President Trump pushed the implementation date for tariffs on the European Union back to July 9.1 Then markets began to trade off just as quickly until the U.S. Court of International Trade in lower Manhattan, New York, ordered an injunction on Trump’s ability to impose tariffs.2 The Federal appeals court reversed the injunction, and tariffs will continue to be levied until the case is heard in the Supreme Court.
All that was a bit of a wet blanket after a monstrous Tuesday and blew the mood for markets, which bounced around before ending the week up and only a few points below Tuesday’s rip-roaring rally. Not even continued lower inflation (more on that below) could reignite the upward momentum. Then news broke that trade talks with China weren’t going well, specifically with respect to rare-earth minerals, and that a meeting between China’s President Xi and Trump was needed to get things back on track.3
Markets seem to be following a predictable pattern: They react badly when there appears to be little news on trade deals, there isn’t enough progress or more aggressive tariffs are proposed. Then they rally when an extension is granted or Trump softens his aggressive stance. This can be very frustrating and feel like we’re taking one step forward only to take another one back. Upending 80 years of trade policy takes time, but it could result in a more self-sufficient America.
Is it time for a rate cut?
We had a surprisingly good earnings season, so higher interest rates and tariffs didn’t seem to hit companies’ bottom lines as badly as predicted. Yet some will argue that, since the tariffs were announced in the second quarter, we don’t yet know what their full impact will be on company earnings.
Here’s some news: CEOs are smart. They knew tariffs were coming and they pivoted. They had good earnings in the first quarter and will probably have good earnings in the second. That’s what talented people do — they adapt, overcome and continue on.
The good news is that it appears inflation is coming down.4 The latest personal consumption expenditures (PCE) and Core PCE readings (the inflation measures favored by the Fed) were both lower in April, and PCE was down to 2.1%. Despite all the caterwauling about tariffs leading to a spike in inflation, we haven’t seen that yet.
Meanwhile, the first revision of first-quarter gross domestic product (GDP) was still negative but only barely, changing from the first reading of -0.3% to -0.2%.5 The economy appears to be cooling, while the jobs picture is solid but far from robust.
It’s high time for the Federal Reserve to move rates lower, and not because Trump is unhappy with Fed Chair Jerome Powell. It’s the right thing to do; higher interest rates will weigh on the consumer and make doing business more expensive. This, in turn, will lead to less economic activity and the economy will stumble into a recession. What isn’t needed right now is the Fed’s current “wait and see” approach. What we need is more forward thinking and less tariff or traffic watching.
Coming this week
- It’s a Fed speaker-palooza this week, with Fed officials lined up to speak just about every day.
- This week’s data will start with auto sales on Monday. Then on Tuesday, we’ll see the job openings for April (this one has a one-month lag). On Wednesday, we’ll see MBA mortgage applications, the Fed’s Beige Book and the ADP employment report.
- The latter half of the week will include unemployment claims and the trade deficit for May on Thursday. Then we’ll finish off the week with the Bureau of Labor Statistics’ non-farm payrolls number. Last month we added 177,00 new jobs, and the consensus for May is a cooler +125,000.6 The unemployment rate is expected to remain at 4.2%.7
- With 98% of S&P 500 companies reporting results, first-quarter earnings are done.8 As of May 30, 78% of companies reported positive earnings per share (EPS) and 64% reported positive revenues. Earnings growth for the first quarter is 13.3% (down from 16.9% last quarter), for the second straight quarter of double-digit earnings growth for the index. For the current quarter, 51 companies have issued negative EPS guidance, while 43 have issued positive. Valuation is still a tad higher for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 21.3. This P/E ratio is above the five-year average (19.9) and the 10-year average (18.3).
1 Jeff Mason and Philip Blenkinsop. Reuters. May 26, 2025. “Trump delays EU tariffs until July 9, European markets rally.” https://www.reuters.com/business/trump-extends-deadline-reach-eu-trade-deal-until-july-9-2025-05-25/. Accessed June 1, 2025.
2 BakerHostetler. May 29, 2025. “US Court of International Trade Strikes Down IEEPA Tariffs.” https://www.bakerlaw.com/insights/us-court-of-international-trade-strikes-down-ieepa-tariffs/. Accessed June 1, 2025.
3 Evelyn Cheng. CNBC. May 29, 2025. “U.S.-China talks ‘a bit stalled’ and need Trump and Xi to weigh in, Treasury Secretary Bessent says.” https://www.cnbc.com/2025/05/30/us-china-talks-bit-stalled-and-need-trump-and-xi-to-weigh-in-treasury-secretary-bessent-says.html. Accessed June 1, 2025.
4 Bureau of Economic Analysis. May 30, 2025. “Personal Consumption Expenditures Price Index.” https://www.bea.gov/data/personal-consumption-expenditures-price-index. Accessed June 1, 2025.
5 Bureau of Economic Analysis. May 29, 2025. “Gross Domestic Product (Second Estimate), Corporate Profits (Prelimary Estimate), 1st Quarter 2025.” https://www.bea.gov/data/gdp/gross-domestic-product. Accessed June 1, 2025.
6 Bureau of Labor Statistics. May 2, 2025. “Employment Situation Summary.” https://www.bls.gov/news.release/empsit.nr0.htm. Accessed June 1, 2025.
7 MarketWatch. “This Week’s Major U.S. Economic Reports & Fed Speakers.” https://www.marketwatch.com/economy-politics/calendar. Accessed June 1, 2025.
8 John Butters. FactSet. May 30, 2025. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_053025A.pdf. Accessed June 1, 2025.
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