At a glance

A constructive U.S. jobs report supported stronger global equity prices last week. Bond yields rose, pressuring prices, and investors trimmed expectations for Federal Reserve interest rate cuts.

Number of the week:

4.2%

The U.S. unemployment rate in May, the same as the previous two months.

Term of the week:

Real estate investment trust (REIT)

A company that owns, operates or finances income-generating real estate. Like mutual funds, REITs pool the capital of numerous investors, allowing individual investors to earn dividends from real estate investments without having to buy, manage or finance any properties themselves.

Quote of the week:

High frequency data reflect a solid economic backdrop. Weekly retail sales and credit and debit card transactions indicate consumers continue spending at a healthy rate, supporting economic activity. Movie theater ticket sales, restaurant reservations and air travel activity corroborate broader consumer spending strength. Minimal supply disruptions stemming from tariffs have emerged thus far despite a drop in imported goods from $347 billion in March to $278 billion in April.

― Bill Merz, CFA, Senior Vice President, Head of Capital Markets Research and Portfolio Construction, U.S. Bank

Global economy

Quick take: Last week’s constructive non-farm payroll report reflects a balanced labor market that continues to support consumer spending and broader economic growth, particularly the service sector. Recent trade data evidence tariff-related impacts through lower imports and weaker-than-expected manufacturing purchase manager indices. This week’s May Consumer Price Index and Producer Price Index reports will provide an inflation update in the wake of rising tariff revenue.

  • High frequency data reflect a solid economic backdrop. Weekly retail sales and credit and debit card transactions indicate consumers continue spending at a healthy rate, supporting economic activity. Movie theater ticket sales, restaurant reservations and air travel activity corroborate broader consumer spending strength. Minimal supply disruptions stemming from tariffs have emerged thus far despite a drop in imported goods from $347 billion in March to $278 billion in April. The number of container ships traveling from China to the U.S. also fell in May but reflects similar shipping activity to prior years.
  • Employment data released last week reflected consistent job growth, low and steady unemployment and meaningful wage gains. Payrolls increased 139,000 in May, near the 12-month average of 144,000, after April job openings increased. Unemployment remained at 4.2%, though labor force participation declined slightly. Average hourly earnings grew at 3.9% year-over-year, surpassing recent inflation readings, which can help sustain consumer spending.
  • S&P Global Purchasing Manager Indexes (PMIs) suggest U.S. economic activity continues to outpace most other developed countries. PMIs with readings above 50 indicate expansion while below 50 indicate contraction. S&P Global reported May composite PMI scores that include manufacturing and services activity of 53.0 for the U.S., 50.3 for the United Kingdom and 50.2 for the eurozone. Robust services activity remains an important driver of broader economic growth.

Equity markets

Quick take: A benign U.S. jobs report helped lift both international and U.S. stocks last week despite ongoing concern around tariffs, government spending and the public spat between President Trump and Tesla CEO Elon Musk. Emerging markets outpaced developed international and U.S. indices. Year-to-date, international equities continue to outpace domestics, while U.S. large-caps are outperforming smaller companies. First quarter S&P 500 reported revenue was in line with expectations while earnings exceeded them.

  • International emerging markets led performance last week. The international-oriented MSCI Emerging Markets Index advanced 2.3% compared to the 0.7% and 1.5% gains of the developed international-oriented MSCI EAFE and S&P 500 indices, respectively.
  • Year-to-date, international stocks continue to outpace domestics; large-caps are outperforming small companies. As of Friday’s close, the MSCI EAFE and MSCI Emerging Markets indices are outpacing U.S. indices by a wide margin, advancing 18.2% and 11.4%, respectively. For the year, the S&P 500 is up a modest 2.6% while the NASDAQ Composite is up 1.4% and small cap-oriented Russell 2000 has retreated 3.8%.
  • The S&P 500 is nearing all-time highs. The S&P 500 ended Friday at 6,000, a mere 2.4% shy of its all-time high of 6,144 reached on February 19 of this year. A resilient economy and strong earnings continue to support equity prices.
  • Analysts currently project $263 for S&P 500 earnings in 2025 and $297 for 2026, according to Bloomberg, FactSet and S&P Cap IQ, representing 7.6% and 13.0% year-over-year growth, respectively. Analysts’ estimates are stable for the past couple of months, though broad market valuations are elevated. The S&P 500 ended last week trading at 24.5 and 22.8 times 2024 actual results and 2025 estimates, respectively. Valuations can stay elevated for a prolonged period, absent inflation and rising interest rates. We expect analysts will modestly adjust 2025 and 2026 earnings projections lower following second quarter releases, beginning in mid-July, as a greater portion of S&P 500 companies offer forward guidance and pending greater clarity around tariffs.
  • Investor focus is shifting beyond first quarter results. First quarter results trended in line to above expectations. Sales advanced 4.6%, fractionally above 4.2% growth expectations, according to FactSet; earnings were up a strong 12.7%, above 7.0% growth expectations. Technology-oriented Oracle and Adobe are among late-quarter reporters slated to release results this week.

Bond markets

Quick take: Stronger-than-expected payroll and wage growth drove bond yields higher last week, weighing on bond prices across the market. Investors reduced their expectations for future Federal Reserve (Fed) rate cuts, with the stronger data alleviating investor concerns of near-term economic weakness.

  • Investors reduced expectations for Fed rate cuts this year. At the beginning of last week, investors expected the Fed to cut rates at least twice in 2025. After last Friday’s payroll data, investors dialed back their expectations, and bond yields now price at least one cut with the possibility of a second in 2025. Balanced labor market conditions can allow the Fed more time to assess inflation before deciding to reduce interest rates, while better-than-expected wage data may be perceived as adding to future inflation risks.
  • The Fed’s Beige Book, a collection of anecdotes from businesses on economic conditions, reported elevated levels of uncertainty. All 12 Fed districts noted hesitancy and caution in business and household decisions, along with upward pressure on prices. Most districts described employment as flat; the report included numerous comments on uncertainty delaying hiring. Cautious expectations reflected in the Beige Book align with other sentiment and confidence indicators that have shown erosion this year amid tariff uncertainty, despite economic activity, including consumer spending behavior, continuing at a solid pace.
  • The European Central Bank (ECB) cut rates while the Bank of Canada (BOC) held rates steady. The ECB cut rates by 0.25% to 2.0%, with ECB President Christine Lagarde indicating the bank may be near the end of its cutting cycle. Investors anticipate at least one more 0.25% rate cut from the ECB this year. In contrast, BOC officials noted holding rates steady would allow more time to assess the impacts of U.S. trade policy, with “uncertainty about U.S. tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data.” BOC officials also noted a future rate cut may be necessary if the economy weakens and inflation remains contained.
  • Higher Treasury yields weighed on corporate and municipal bond prices last week, but high yield corporate bonds and bank loans delivered slightly positive returns. Recent price increases pushed corporates to slightly expensive valuations compared to history while municipal bond valuations remain inexpensive, presenting favorable income opportunities for taxable investors.

Real assets

Quick take: Real estate investment trusts (REITs) rose 0.2% last week, with gains in data center REITs offsetting declines in telecommunication and multi-family REITs. Global infrastructure returned 1.0.% while broad commodity indices gained nearly 3.9%.

  • REIT returns were mixed across property types. Data center REITs, which account for roughly 10% of publicly traded real estate, gained 6% last week, with favorable analyst research ratings and new data center announcements boosting sentiment. Office properties delivered strong gains as well but only represent a small portion of broad real estate exposure. Rising Treasury yields posed a headwind for other real estate categories. Higher bond yields offer competitive income sources relative to real estate. Telecommunication REITs, which represent 9% of publicly traded real estate, lagged the most and fell 4.4%.
  • Silver led commodity prices higher last week. Silver prices gained nearly 9% last week after lagging gold’s price gains this year. Oil prices increased nearly 6% after the Organization of the Petroleum Exporting Countries (OPEC) increased production targets less than expected and wildfires disrupted a portion of Canadian supply. Improving economic growth expectations may have also provided a tailwind for commodity prices sensitive to economic growth, with industrial metals gaining 1.6%.
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Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The NASDAQ Composite Index is a market-capitalization weighted average of roughly 5,000 stocks that are electronically traded in the NASDAQ market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index and is representative of the U.S. small capitalization securities market. The MSCI EAFE Index includes approximately 1,000 companies representing the stock markets of 21 countries in Europe, Australasia and the Far East (EAFE). The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. The S&P Global Purchasing Managers' Index data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies. The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is one of the most frequently used statistics for identifying periods of inflation or deflation. The Producer Price Index (PPI) is a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller.

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This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio.

Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. 

Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Investments in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in fixed income securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities.

Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments.

The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes.

There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

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The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.