June 2025 Update on the Economy and Markets

By PJ Williams, CFA, Chief Investment Officer

Overview 

The month of May brought more of the same on the tariff front with new tariffs threatened and others retracted or postponed. With that said, tariffs and their implementation remain fluid. Sitting down to write this commentary last week, the expectation was to discuss the newly proposed 50% European Union tariffs, postponement of tariffs on China and the proposed tariff on Apple (AAPL) if it did not agree to move manufacturing to the U.S.   

Those plans were derailed with the late Wednesday news that a three-judge panel from the U.S. Court of International Trade deciding President Trump had exceeded the powers provided to him under the International Emergency Economic Powers Act of 1977 (“IEEPA”). In other words, the tariffs imposed were “illegal.” 

It should be noted that the three judges were appointed by Trump, Obama and Reagan. The ruling was immediately appealed by the White House. Goldman Sachs noted that: “This ruling represents a setback for the administration’s tariff plans and increases uncertainty but might not change the final outcome for most major U.S. trading partners…For now, we expect the Trump administration will find other ways to impose tariffs.¹” The ruling blocks the blanket tariffs on countries but does not affect sector level tariffs, such as those imposed on steel, aluminum and automobiles. The administration is likely to look at other sections of U.S. trade law to find a work around including replacing the 10% across-the-board tariff with a similar tariff of up to 15% under Sec. 122 of U.S. trade law. Markets around the world initially surged higher in after-hours trading but settled back on Thursday.   

Editor’s Note:  Following the completion of this commentary, an appeals court paused the U.S. Court of International Trade’s ruling earlier in the week, and Trump announced plans to double the tariffs on steel and aluminum imports.  As stated earlier, the tariff environment remains fluid. 

During April, both China and the U.S. took tariffs over 100% in an escalation of the trade war between the two countries. On May 14, the U.S. announced a 90-day pause which dropped tariffs during this period to much lower levels. Following the temporary de-escalation with China, Trump turned his attention to the European Union (EU) with the announcement that a 50% tariff would be implemented on imports from the EU beginning in June. This lasted only a few days before these tariffs were postponed until July 9 following a call between the Trump and the European Commission President Ursula von der Leyen.   

Alongside the EU tariffs, a 25% tariff on Apple was floated if Apple did not make strides to move manufacturing to the U.S. All of these tariffs are now up in the air with the court ruling, which creates uncertainty for investors, consumers, corporations and the Fed. It is very difficult to budget and make business plans without understanding the costs that may be associated throughout a company’s supply chain. It appears the Fed is hesitant to make a move or insinuate a move without more clarity on the tariff situation. Sadly, the future of tariffs got murkier last week. 

With that said, the postponement and reduction in tariffs did provide a tailwind to risk assets during May as equity markets around the world rose. The S&P 500 returned 6.3% during May and ended the month up 1.1% year-to-date (YTD). Alongside the rise in risk assets, U.S. bond yields rose creating a headwind for fixed income but remain below levels observed in January. 

Separate from the tariffs, Washington is dealing with what appears could be a lengthy negotiation over the latest budget bill. The House narrowly passed President Trump’s budget bill, almost entirely along party lines; however, it is expected to face headwinds in the Senate. The question is how significant the Senate’s edits will be to the bill and what that does to the vote when it has to pass back through the House. All these factors may be impacted by the litigation results discussed above.  

There are concerns in the House and the Senate about how much this bill could add to the deficit and U.S. debt over the coming years. As we have said before, we expect that at some point the U.S. debt burden will become an issue that must be addressed, but that point is difficult to predict given the U.S. dollar’s role as the largest reserve currency, size of the U.S. economy, and the ability to print our own money. [See our extended analysis on this in our FAQ section.] 

There had been hope in D.C. that DOGE, led by Elon Musk, would uncover massive amounts of waste in government spending that could partially offset the cost of the budget bill. It does not appear that this has been the case, and, last week, Musk announced that he would be stepping away from his government role. Hopefully, going forward, this department and Congress will continue to look to remove waste and fraud from the system. 

Markets   

As mentioned in the opening, May was a strong month for stocks as investors cheered the tariff postponement on China and then the EU and then the U.S. Court of International Trade decision.   

• U.S. Stocks rallied on what may be only a temporary tariff de-escalation. After briefly entering a bear market (down 20% from previous high) intra-day on April 7 and 8, the S&P 500 is now back within 4% of its all-time high set back in February as of the end of May. The impact of tariffs on corporate profits will be an important determining factor affecting the sustainability of the recent rally.   

• International Stocks continued their 2025 outperformance finishing May up 14% YTD. The U.S.’ efforts to reshape trade and global alliances has pushed pro-growth and pro-defense policy shifts in Europe and Asia. When combined with a weaker dollar and lower, less stretched valuations to begin with, the policy shifts have pushed international equities higher, leading to significant outperformance. Whether this will continue is a question many investors are asking. 

• Inflation was little changed in April. Headline inflation (CPI) dropped to 2.3% in April from 2.4% the previous month, while core inflation remained at 2.8%. The market had been expecting 2.4% and 2.8%, respectively. The Fed will be watching inflation closely in 2025 to see how tariffs and slowing growth affect prices. At the same time, the Fed continues to worry about cutting rates too quickly. The Fed’s preferred measure of inflation, the US Personal Consumption Expenditures (PCE) price index, rose by 0.1% MoM in April 2025, following a flat reading in March.  On a YoY basis, headline PCE inflation eased for a second consecutive month to 2.1%, the lowest level in seven months, down from 2.3% in March and below forecasts of 2.2%. 

• Consumer confidence jumped in May for the first time this year on hopes of tariff relief and a de-escalation of the trade war with China. The Conference Board’s Consumer Confidence Index increased to 98, a 12-point increase from April and well ahead of the Dow Jones consensus estimate for 86. According to the Conference Board, “The rebound was already visible before the May 12 U.S.-China trade deal but gained momentum afterward… Consumers continued to express concerns about tariffs increasing prices and having negative impacts on the economy, but some also expressed hopes that the announced and future trade deals could support economic activity.²” 

• As expected, the Federal Reserve held rates steady during its May meeting as tariff concerns remained elevated. In his post-meeting statement, Powell said “If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown, and an increase in unemployment…Our obligation is to keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing problem.³” The next Fed meeting is scheduled for June 17-18 with the market currently expecting the Fed will again hold rates steady.    

In the minutes from their May meeting, the Fed noted that “In considering the outlook for monetary policy, participants agreed that with economic growth and the labor market still solid and current monetary policy moderately restrictive, the Committee was well positioned to wait for more clarity on the outlooks for inflation and economic activity. Participants agreed that uncertainty about the economic outlook had increased further, making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer. Participants noted that monetary policy would be informed by a wide range of incoming data, the economic outlook, and the balance of risks… Tariff announcements led to a significant deterioration in global risk sentiment, which largely reversed following a subsequent pause of some of the tariffs and growing investor optimism about easing of trade tensions.³” 

Uncertainty combined with a wait and see approach were the main themes of the minutes. The Fed is attempting to avoid a misstep by cutting too soon if inflation reignites as a result of a global trade war. Following the decision to continue the pause in May, Trump resumed his attacks on Chairman Powell. Last Thursday, Powell visited the White House for a conversation with Trump during which he was again told that the Fed was making a mistake by not cutting. Powell has insisted the Fed will remain independent despite the continued criticisms.   

Geopolitics 

Unfortunately, the war in Ukraine rages on, a ceasefire agreement remains elusive, and Russia has proven itself the holdout. Fighting, especially via drones, has escalated between the two sides in recent weeks, with Trump suggesting he may increase sanctions on Russia. In recent weeks, Trump’s criticism of Putin has surfaced and escalated, resulting in a tit for tat game of threats between the two parties. 

Trump made his first international trip during this term in May. His Middle East tour included Saudi Arabia, Qatar and the United Arab Emirates. There has been much discussion about this trip in the media, but it does appear on the surface that Trump was able to secure trillions of dollars of investment from these three countries for America and its corporations. Another event in the Middle East that has not garnered as much attention is Trump’s plan to lift at least some sanctions on Syria, a country the U.S. has had sanctions on since 1979.   

This is setting the stage for what could be a major breakthrough if the Administration can secure a new nuclear deal with Iran, which parties to the discussions believe could be close. While these negotiations have been ongoing, Trump has implored Israel not to strike Iran. When the dust settles from these negotiations and the eventual end (hopefully soon) of the war in Gaza, there could be some major moves in terms of realignment in the region. 

One ceasefire that has at least temporarily held is between India and Pakistan. Their latest conflict only lasted for a few weeks from late April to early May but shows how precarious the situation between the two neighbors remains. Both countries are nuclear powers, and the history between the two makes it a potential tinder box for conflict. Note the U.S. did participate in talks to broker a ceasefire.  

As we have discussed previously, none of these conflicts is expected to have a major effect on investment markets, though the human toll remains unspeakable. We continue to monitor these conflicts along with the ever-present risk related to Taiwan and China, as well as Israel and Iran.   

SFG’s Take: SFG continues to focus on diversification across asset classes including private alternatives including infrastructure, real estate and credit. Our strategy this year has been effective despite wild market swings and oscillating trade policies. We believe the next few months are likely to bring more volatility as the global trade war continues and the initial effects of the tariffs that have already been applied flow through the global economic system.  

As we have discussed, it is imperative that an investor be in the correct risk tolerance for their own personal situation. With the recovery in equity markets during the past two months, now may be a good time to revisit your current strategy if you have concerns. Please do not hesitate to reach out to your wealth advisor. 

First Eagle Proxy Notice: Client investors in one of our longest held mutual funds, First Eagle Global, are being asked ahead of a June 30 special shareholder meeting to approve a proposal for Genstar Capital to purchase a majority stake in First Eagle Investments. Genstar is acquiring the holding from private equity firms, Blackstone and Corsair Capital, and is expected to support First Eagle’s growth strategy and expand the firm’s investment offerings. First Eagle’s leadership and investment teams will remain intact with no changes to the firm’s investment philosophy or process. SFG’s Take: After reviewing the proxy material and discussing with First Eagle representatives, SFG recommends that clients vote to support this proposal. 

Sources:

1. Investopedia, “Here’s How Goldman Sachs Interprets Last Night’s Ruling on Trump Tariffs,” 05-29-2025

2. Conference Board, “US Consumer Confidence Partially Rebounds in May,” 05-14-2025

3. The Wall Street Journal, “Fed Warns of Rising Economic Risks as It Leaves Rates Steady,” 05-07-2025

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PJ Williams, CFA, 

Director of Investment Operations,

Co-CIO

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