Record Highs Back in Reach

1. Growth through the Craziness. Despite the newsworthy recent weeks filled with on-and-off tariffs, volatile trade negotiations, and even a public feud between Elon Musk and President Trump, the U.S. economy continues to show its strength. This week’s non-farm payrolls report added more positive news to the labor market, with the U.S. adding 139,000 jobs in May, exceeding expectations of 130,000. The unemployment rate also held steady at 4.2%, while the Job Openings and Labor Turnover Survey (JOLTS) report was positive, with job openings totaling an estimated 7.39 million, marking the first monthly increase since January. Additionally, the May Challenger Gray & Christmas job cuts report was down 11% m/m, the lowest since December. Weekly jobless claims did tick higher this week, however the 4-week moving average remains low at 235k, still far below the typical recessionary period of 350k-375k. As of June 5, the Atlanta Fed GDP Now measures 2Q GDP growth at 3.8%, providing a strong base for earnings momentum to continue this year.

Markets seesawed through the week but ended higher, boosted by the strong non-farm payrolls report last Friday. The S&P 500 ended the week up 1.50%, the Nasdaq up 2.18% and the Dow Jones up 1.17%. The S&P 500 finished the week ~20% above the April post-Liberation Day lows; now just ~3% off the February record close.

The upcoming week will be important on the inflation front, with CPI/PPI reports being released Wednesday and Thursday, respectively. We anticipate continued progress on cooling inflation, meaning eventually the Fed can begin to cut interest rates – which we expect to be in the fall. The strong labor market, resilient consumer, and declining inflation provide a strong backdrop for continued market strength moving forward.

Chart 1: Total Non-Farm Employment in May^[1]

2. Tariff Progress. This week we saw some positive trends toward tariff relief. President Trump and President of China, Xi Jinping spoke on June 5, which ended with an agreement to a new round of trade talks. One key area of contention is rare earth minerals, where the U.S. has complained that China has not accelerated licenses fast enough. In response, China began issuing more export licenses for rare earths, including the U.S.’ top three automakers (F, GM, STLAM). Trump also announced that Treasury Secretary, Scott Bessent, Commerce Secretary, Howard Lutnik, and U.S. Trade Representative, Jamieson Greer, will meet with Chinese negotiators in London on June 9^th for further trade talks. This is an improvement from previous reports, which indicated negotiations between the U.S. and China had stalled.

Additionally, Trump made sure to carve-out the United Kingdom (U.K.) from his recent steel and aluminum tariff hike, which was a positive reflection of the ongoing trade discussions between the two nations. The U.S. and the U.K. remain engaged in talks, the goal of reaching an agreement soon. Trade negotiations will be under the microscope through June, with the Trump administrations 90-day pause expiring on July 8^th.

3. Beyond the Tariffs. Looking forward, tariffs will not be at the forefront of headlines and the administrations focus perpetually; there is still an intention in Washington to reduce the regulatory burden on businesses. The administration has previously argued that excessive regulation stifles innovation and halts economic growth. Once we get past tariffs, their focus will shift towards more pro-growth policies, such as lower taxes and de-regulation. De-regulation provides corporations with reduced compliance costs, flexibility to innovate, and allows for a streamlined approval process to speed deals through, which in turn provides the economy with fuel to expand at a strong, healthy rate.

A supportive government that encourages corporations to expand, that will lead to more M&A (mergers and acquisitions). While M&A activities are still low relative to historical levels, we have seen an increase in deals by ~17% y/y, with the technology sector leading the charge, having completed $157.4 billion in deals this year as of June 6.

If M&A activity continues to improve as we expect, there is a clear beneficiary to an influx of deals being proposed and completed, which are financials (banks). De-regulation removes constraints on where banks can invest their capital, allowing them to explore more opportunities and increase their lending, which allows them to realize higher returns. It also lessens the burden of needing to meet regulatory requirements, which saves them both time and money. Banks are heavily involved in M&A, as corporations engaging in mergers or acquiring other businesses hire investment banks to lead and value those deals, directly contributing to their revenue. We remain overweight in this sector and are optimistic about increased M&A deals once the tariff noise dissipates.

Chart 2: Top Five Global M&A Sectors^[2]

3. Fixed Income. Last week, Treasuries initially rallied on a weak ADP jobs report but ultimately sold off to end the week as other jobs data (initial claims, nonfarm payrolls, unemployment rate) continued to show strength. The 2-, 10-, and 30-year yields ended the week 13, 10, and 4 bps (basis points) higher, respectively. This week, CPI/PPI inflation data is the key economic reading coupled with the 30-year auction Thursday. The Fed is in a blackout period ahead of their June FOMC meeting next week.

Corporate bond spreads continued to grind tighter, with IG spreads tightening 4 bps and HY tighter by 23 bps on the week. Weekly tax-exempt issuance was the second highest of all time as issuers took advantage of June reinvestments coming due. The issuance was met with strong demand, and yields were lower on the week on the front end and 1 bp higher on the long end, strongly outperforming Treasuries.

4. The Week Ahead.

Economics – Monday: Wholesale Inventories; Tuesday: Small Business Indes; Wednesday: CPI, Hourly Earnings, Average Workweek, Treasury Budget; Thursday: Initial Claims, PPI; Friday: Michigan Sentiment

Earnings – Monday: CASY; Tuesday: SJM, DBI, GTLB, PLAY, SFIX; Wednesday: CHWY, ORCL, OXM; Thursday: LOVE, ADBE

Stephanie Link’s TV Schedule:

Return for Selected Indices^[3]

Sources

^[1] Source: U.S. Bureau of Labor Statistics, As of June 6, 2025.

^[2] Source: Dealogic. As June 6, 2025.

^[3] Source: Bloomberg. As of June 6, 2025

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