5/30/25: Markets Rally on Tariff Delay and Confidence Rebounds

This week featured a variety of key data points measuring the health of the US economy along with some tariff-related headlines. The market responded positively after a 50% tariff on EU goods was delayed until July 9 and faced legal challenges. In the wake of the temporary reduction of tariffs on Chinese goods, consumer confidence rebounded to 98.0 as of mid-May, above the previous reading of 85.7 and the long-run average of 96. Survey participants’ overall economic outlook improved along with increases in plans to purchase appliances, cars, homes, travel, dining and entertainment.

Meanwhile, personal income rose 0.8% in April while personal spending slowed to 0.2% as consumers pulled back on purchases, causing the US savings rate to rise to 4.9% last month. The Fed’s preferred inflation gauge, personal consumption expenditures (PCE), was subdued in the month of April, increasing by only 0.1% month-over-month. Headline PCE decelerated to 2.1% and core PCE was up 2.5% versus the previous year but are still hovering above the Fed’s 2% target.

The second estimate of first quarter GDP improved slightly to -0.2% as businesses pulled forward investments in inventory and equipment. Second quarter GDP is expected to improve as import activity is anticipated to slow; Imports of goods in April plummeted by a record 20% due to tariffs. Durable goods declined -6.3% in April on a steep drop in aircraft orders and a pullback in business investment after a surge in the first quarter of the year. The Atlanta Fed GDP Now is calling for 3.8% growth in Q2, while the Bloomberg consensus estimate is projecting growth of 1.4% for both the second quarter and the full year 2025.

The Federal Open Market Committee (FOMC) minutes from their May meeting indicate that the Fed is willing to be patient with future rate cuts as the implications of US trade policies unfold later this year. The federal funds futures market is currently pricing in two 0.25% interest rate cuts in the latter half of 2025, which is consistent with Chandler’s view. The US Treasury yield curve steepened in the month of May, with the 2-year note trading at 3.91%, the 5-year at 3.97%, and the 10-year yield at 4.41% as of this writing.

Next week: S&P US Manufacturing Purchasing Managers Index (PMI), Institute for Supply Management (ISM) Manufacturing, JOLTS Job Openings, S&P US Services PMI, ISM Services Index, US Employment Report, Consumer Credit.

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