Market Insights Recap — Week of June 2, 2025

Hello, I'm Steve Orr, Chief Investment Officer for Texas Capital's Private Bank. 

Tariff trauma moves to courts, a closer look at some D.C. drama issues and how that affects our portfolios. Well, May was a banner month for stock markets, the best May for the S&P 500 in 35 years. Now post-election year Mays are usually just OK, averaging about 1% to 2% gain over the last 70 years. This May, the S&P 500 rose 6%, Magnificent Seven led the Nasdaq to a solid 10% gain. After the tariff trauma dropped to below 5,000 back in April, "almost all the S&P 500 gains have come on just four days" of backtracking from tariffs. The most recent Tuesday's bounce after Trump paused new EU tariffs. 

The court injunction against Trump's use of IEEPA by the Court of International Trade didn't really move markets that much, because, as we said back in March, the administration has a number of laws that they can use to impose tariffs. It's just going to take a longer timeline of tariff uncertainty. But market-wise, history does tend to rhyme, and we found the S&P had seven similar patterns to this year's new high, followed by a 20% drop dating back to 1997. And performance over the next three and six months each time we looked was mixed, four up, three down. A year later, five of those were up with solid gains. So, no need to radically adjust stock holdings right now. 

Now for something a bit different than our usual discussions: How do we get stock earnings? Well, back at the beginning, the government lets you form corporations to minimize risk. And D.C. drama takes many forms, and one of those is regulating what companies and stock markets can do. Things are happening in D.C. that don't get a lot of attention but do affect long-term earnings. One of those: Supreme Court cases. The Seven County decision came out last Thursday. In 2021, the Surface Transportation Board ruled that a group could build a railroad in Utah. Several environmental groups and one county in Colorado sued over speculative environmental impacts about how much pollution might be created at Gulf Coast refineries from oil from Utah. Four years after getting their permit, the railroad's not even started. And the court basically ruled that the Surface Transportation Board did its job and outsiders should not distort and abuse the National Environmental Policy Act to delay and derail projects. In other words, outsiders need to quit suing, back off and let projects get built. This is a great win for our clients, contractors and subcontractors. Ultimately, this is going to drive more earnings and more business for our economy. 

Rates-wise, the Fed is still on hold. The Senate's going to have about 20 legislative days this month to get their house in order and resolve the debt ceiling wall with the House. There's a mountain of Treasury debt issuance coming up that will need buyers. So if you're a buy and hold investor, rates are well above inflation. One positive for inflation right now is that OPEC is going to increase production again. More supply really doesn't help our Texas producers. But consumers do like lower pump prices, and that feeds through to inflation readings. We do think inflation ticks higher later this year after some mild tariff effects. We're forecasting a range of about 3% to 3.25% for inflation by year-end. If you're a total return investor, you can wait a while to see how much more Treasury yields rise as prices fall. But again, if you're a buy and hold investor, these are very reasonable levels for you to get involved.

To wrap up, a fine May for stocks thanks to backtracking on tariffs. June's historical performance is just so-so. It ranks ninth out of 12 months for the S&P 500, returning basically zero for the month over the last 70 years. Long rates working their way to the top of a range that they've been stuck in for the last two years. This week, we'll get our first look at April economic data, factory orders, job openings, unemployment. They should all show little change from April to May. So, let us know how we can help; 'til next time.