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AI Leads, Tariffs Loom, and Investors Hang On
Markets had a rollercoaster ride in May, but the destination was solid gains. Especially for technology. The S&P 500 jumped over 6% in May, continuing the recovery from April. Leading the charge was Big Tech and AI. NVIDIA’s earnings wowed investors, with revenue and profits smashing expectations and its data-center business skyrocketing 73% year-over-year. The company’s growth underscores continued AI spending from titans like Microsoft, Meta, and Amazon, who collectively plan to invest more than $330 billion this year in innovation.
Beyond the flashy chip news, corporate earnings across the S&P 500 remained resilient, with 2025 growth projected in the mid-to-high single digits. Even considering the downward revisions due to tariff anxiety, nine out of 11 sectors are still expected to grow. Inflation also cooled slightly, with the Fed’s preferred PCE index easing to 2.5% year over year in April. This marked its slowest pace in four years and leaves the pace running only slightly above the Fed’s 2% target.
Tariffs, however, stole headlines again. The Trump administration delayed some 50% tariffs on European goods, but relations with China remain tense. A reporter in the White House asked Trump about the T.A.C.O. trade (Trump Always Chickens Out), alluding to the idea that all the aggressive moves end up being bluster. A federal court briefly struck down global tariffs, only for an appeals court to pause the ruling within hours. Yes, it’s all confusing, and yes, markets reacted accordingly. Treasury yields fell as investors turned to safer bets amid the trade-policy whiplash.
Despite the noise, consumer confidence rebounded strongly, and equity indexes posted weekly gains, led by the Nasdaq (up 2.01%). Meanwhile, crypto, gold, and oil took a breather, consolidating after recent moves.
What This Means for Investors
While tariff uncertainty may cause short-term jitters, strong corporate earnings and a potential rate cut in late 2025 could provide fuel for the next leg up. There appears to be no “sell in May and go away” trend this year. Staying diversified and invested looks like a smarter bet than timing the next headline.
Market Activity
Solid week for stocks considering all the trade and economic news. Strong NVIDIA earnings certainly helped. The market is riding high off of strong earnings, but growth will slow in Q2. Gold and Bitcoin consolidated this week, but there is little reason to think the bull market in either is over. Yields dropped across nearly the whole yield curve, but most importantly, the long-end returned to sub-5%.
Stocks
Fixed Income
Economic Reports
All around, it was a pretty good week of results on economic indicators. Although initial and continuing jobless claims came in hot, there still isn’t a dangerous trend — yet. JOLTs, Nonfarm payrolls, and hourly earnings coming in next week will add some layers to the labor market picture, which right now is the most important part of the broader economic environment. People with jobs will spend. Personal consumption expenditures (PCE) fell to a four-year low which is great news, if it holds up through the summer. Every month is another test of our economic resilience.
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Earnings Releases
NVIDIA earnings were strong despite the hit to China revenue. The AI train keeps rolling. If it wasn’t for the trade news overnight and the next day, the market might have celebrated a bit more.
It’s been a mixed bag on reports from retailers. Best Buy got pummeled, while Costco missed on revenue and jumped. Upcoming Dollar Tree and Dollar General may offer a little insight into the lower end consumer, but they are becoming largely irrelevant in terms of their value to overall US consumption and broader corporate earnings trends.
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Recommendations
Three Things – Exponential AI | This piece could also have been called Existential AI. There are whispers that entry-level jobs are already being impacted. Are jobs over? No. But they will need to change and those changes will be uncomfortable. The employment benefits of Higher Ed is showing significant erosion.
- AI is keeping recent college grads out of work | I empathize with the feeling of the broken Higher Ed contract. Graduating into the GFC was rough.
Markets
- A loss is just a gain that hasn’t happened yet | All is not lost! Just repeat after me: “The Fed must act now”. Make sure you get the lingo down so you don’t look foolish in front of your kids’ friends.
- Trump tariff reprieve could create more risk in Treasury market: Klement | Heads you lose. Tails you lose. The beatings will continue until morale improves.
- Where is All of the Money Coming From? | There is a lot of money out there for supposedly “tight” monetary policy. Ben Carlson discusses where its coming from.
- Five mind-blowing market facts...that will make you a better investor | Callie Cox covers various market facts that all point to why there is always a reason to be bullish.
Other Things
- Apple's No Good, Very Bad Week & Profiles in Courage: Apple Edition | Apple isn’t growing, they are losing in court, and they are circling the wagons. Bad news for investors.
- Oren Cass is wrong about economic laws | You can fight with other financial writers but you can’t fight the market.
Chart(s) of the Week
The tax bill which is working it’s way through Congress isn’t in it’s final form. But without a major overhaul, the impacts to the deficit and the economy aren’t likely to deviate too far from this projection from Goldman Sachs. The growing deficit is a major overhang for the bond market, and the risks to the economy are greater than the benefits.
It’s safe to assume our future leaders won’t maintain the spending cuts slated for 2030+. Under this plan and our current spending trajectory, the debt growth is front-loaded. And then later, it will also be back-loaded.
Investors who have built their market experience over the past 15 years, have only seen pretty tame environments. For all the chaos of the past few years, markets have held up pretty well. Prudent investors should be prepared to play defense, because it may not last forever.
Source: Ritholtz Wealth Management
Source: Ritholtz Wealth Management
Per Redfin:
“There haven’t been this many home sellers since March 2020. There haven’t been this few buyers at any point in records dating back to 2013 aside from April 2020, when the onset of the coronavirus pandemic brought the housing market to a halt.”
Source: Redfin
The depth of the US financial markets are protecting us from descending into an even worse credit position than we already are. Does the US deserve to rated lower? This chart from Apollo showing where the US ranks in terms of credit default swap (CDS) spreads puts us in pretty bad company. Time to tell your senator to tighten their belt.
Data: May 27, 2025. Sources: S&P Capital IQ, Bloomberg, Apollo Chief Economist