The markets continued to climb higher this week as we’ve come full circle. The S&P 500, which at one point had been down over 17% for the year, has climbed all the way back to close in positive territory for 2025. One article I read said, “it’s like breaking even after going to a casino for four hours.” Not that we equate investing with gambling, but in some ways, this year has been more volatile than usual. Fortunately for us, the catalyst this week was the détente between the U.S. and China over the tariffs. Let’s hope 90 days is enough to reach a final agreement.
Perhaps you’re familiar with the old stock market adage “sell in May and go away.” That isn’t always the case. Historically, the data suggests that November-April has yielded stronger average stock market returns compared to May-October. Since 1990, the difference has been 2% vs 7% over the respective periods. However, you’ll also remember a frequently used disclaimer that goes something like, “past performance is not indicative of future results.” That is because averages are just that… average. In 2023, the market defied seasonal expectations and rose 8.75%. Perhaps this year could be another anomaly, with the S&P 500 up 6% over the past two weeks. We take these kinds of things with a grain of sale. While they sometimes work, it is impossible to predict with any accuracy which recalls another adage, “it’s not about timing the market, but about time in the market.” This is one we firmly believe.
Regarding catalysts, let’s talk about China. The “deal” that was reached this week was simply a reduction in tariffs from 145% to 30%, while giving negotiators more time to reach an agreement. Not to downplay this news too much, there is still a lot to work out. However, the decrease in tariffs means that the worst-case scenario has been averted for the next few months. Inflation will likely not rise as much as was expected under the previous policy, and economic growth while slowing may not result in a recession. In fact, both JPMorgan and Goldman Sachs this week lowered the probability of a recession to under 50% and 45% respectively.
As for inflation, we have good news on that front too. The April Consumer Price Index came in lower than expected, which was a nice surprise. According to the report, inflation rose 2.3% on an annual basis, less than the 2.4% expected but still above the 2.0% target set by the Federal Reserve. April’s number reflects the lowest reading since February 2021. More importantly, it wasn’t goods driving inflation in April. Housing costs were the major influence according to the Bureau of Labor Statistics. Additionally, energy costs ticked higher despite lower gasoline prices, due to increases in natural gas and electricity costs. The takeaway, depending on your political stance, is that either tariffs aren’t going to impact prices or that it’s just too soon and we should expect a pickup in inflation later this year. I believe the answer lies somewhere in the middle. And lastly, while it is too early to know exactly what will end up in the Republican’s tax bill, we are seeing the outlines of what it could look like. The House Ways and Means Committee advanced a bill passed along party-lines. The 389-page bill includes the extension of the 2017 tax cuts to individual rates. Other priorities include an extension of the maximum child tax credit, and elimination of taxes on tips and overtime pay, and a new $4,000 deduction for older Americans. The cuts also appear to be progressive with those earning under $80,000 seeing a 15% decrease in taxes while those earning over $1 million realizing an 8.6% decline. Before you get too giddy, these tax cuts are estimated to increase the national debt by $2.2 trillion over the next ten years.
In closing, I turn to a story regarding a hidden treasure. This week Harvard University learned that an old document packed away in its archives is believed to be an original copy of the Magna Carta. The 19-inch-by-19-inch parchment was purchased by the university for $27.50 from a British auctioneer nearly 80 years ago. Until now, the library staff figured it was a cheap knockoff. It is just one of seven copies still in existence dating back to 1300. To be clear, it is one of the world’s most valuable documents. The last one to sell was at Sotheby’s in 2007 for $21.3 million. I guess Harvard’s endowment just got a little larger. Now you know.
Bruce J. Mason, MBA
