Weekly Market Update: June 2, 2025

First-quarter earnings season is now in the rearview mirror. For the three-month period, profit growth for the S&P 500 companies averaged around 13%. That marked the second-consecutive quarter of double-digit earnings advances for the Index, with nearly 80% of the companies reporting better-than-expected growth. However, a number of the major retailers did warn that the ongoing trade developments, including the threat of higher tariffs, will likely put upward pressure on prices for goods. The resultant higher costs will then have to be either absorbed by companies (pressuring their margins) or passed along to the consumer via price hikes. Thus … 

The Federal Reserve doesn’t appear to be in a rush to reduce interest rates. Despite recent reports showing slowing price growth at both the producer (wholesale) and consumer levels, there are concerns among monetary policymakers that the unsettling global trade policies could lead to a re-acceleration in inflation over the summer months. Our sense is that the direction of monetary policy over the remainder of 2025 will be ultimately driven by the state of the labor market. So far this year, job creation has held up well, with non-farm payrolls increasing by an estimated 362,000 over the two-month period ended April 30th. The current consensus forecast is now calling for just two interest-rate reductions in the second half. 

Then there is the looming budget deal on Capitol Hill. The House of Representatives recently passed a mammoth bill by a razor-thin partisan margin and sent the bill to the Senate for further action. However, initial reports are that the bill, in its current form, faces opposition from some Republican lawmakers. This could potentially slow the process and delay the tax cuts and deregulations sought by President Trump to support an economy that contracted for the first time in three years during the first quarter. 

Conclusion: Stocks continue to climb the proverbial wall of worry, which includes an unclear fiscal and monetary policy backdrop. Investors, though, typically don’t like uncertainty and, given this environment, we recommend maintaining a portfolio consisting mostly of high-quality companies (with reliable cash flows) and cash-equivalent securities. 

Source: ValueLine.com