“
”Markets in Focus
Timely analysis of market moves and sectors of opportunity
The quick pivot on E.U. tariffs has temporarily stopped a market slide, but uncertainty remains as investors await more trade deals.
Over the medium term, outflows could increase if foreign investors continue pulling funds from the U.S.
Investors may want to consider using outsized downward moves opportunistically to strengthen their diversification across asset classes, geographies, and sectors.
The latest brinksmanship between the United States and the European Union demonstrates that trade risks remain and that U.S. President Donald Trump will apply maximum pressure to secure deals. Even Apple was caught up in the re-escalation with 25% tariffs threatened on iPhones.1
“Equities were overbought and stretched heading into last week after a nearly 20% rally, so the weaker price action isn’t at all surprising,” said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management. “What matters most is how the market deals with bad news going forward.”
This week will see the quarter’s last major earnings reports, and after that, the market could return to being primarily driven by macro catalysts. The clock is quickly ticking down on the 90-day tariff pauses that end on July 9 for “reciprocal” tariffs and August 14 for the U.S.–China de-escalation. Orton expects to see more brash announcements from the United States, in line with its recent threats against the European Union, intended to accelerate the pace of trade deals.
Long-dated yields across major bond markets have all increased meaningfully over the past few weeks, elevating potential volatility in the short term. “My base case is that we’re likely to see sideways price action across the equity complex until we get some sort of resolution on the trade front and the fiscal front at home,” Orton said. He continued to advocate for diversification in portfolios across asset classes, geographies, and sectors, and recommends that investors consider using any outsized downward moves opportunistically.
“Trade headlines continue to capture most of our attention, but it’s worth highlighting the action across global bond markets,” Orton said. Yield curves are steepening around the world with a continued focus on fiscal measures and deteriorating supply–demand dynamics. In the United States, 30-year U.S. Treasury yields have increased nearly 30 basis points (bps), and they’ve increased by 36 bps in Japan and 20 bps in Germany.
Long yields are on a rapid ascent
Change in 30-year government bond yields over the last four weeks
Source: Bloomberg, as of 5/23/25.
So is this as good as it gets?
Orton said that while moves in Japanese government bonds stand out, their increase is likely attributable to historically low net-buying activity from life insurers and rebalancing flows from pensions. “Action in the United States is more focused on fiscal dynamics,” he said. 30-year U.S. Treasuries are trading above 5.0%, and increased concerns around the fiscal backdrop are putting a spotlight on the tax bill passed by a narrow majority in the U.S. House of Representatives. The bill will head to the U.S. Senate with a lot of sticking points, particularly from Republican senators who are wary about cuts to healthcare programs. Both chambers need to agree on the final version, which will take time.
“The next few weeks — with the Senate discussing the tax bill — is a crucial checkpoint for the U.S. fiscal story, and possibly an inflection point for the U.S. Treasury market,” Orton said. “It could be the difference between a grey swan event in U.S. Treasuries or a stable bond market with lower yields.” Investors may see some choppy and sideways price action until later in the summer, after some resolution on the fiscal and trade fronts.
Despite the risks, Orton said it’s hard to get too negative on the equity market given earnings that were more resilient and guidance that was less apocalyptic than expectations. And the Senate’s version of the tax bill, which is expected to be even more fiscally expansionary than its House counterpart, could provide a cushion for the American consumer.
“Forget the inherent policy contradictions that exist within the current legislation and its total lack of alignment with the goals used to justify tariffs. It’s clear that we’re trying to get the economy to run hot, and equities can be a pretty good place to be in that scenario,” Orton said. If rates can find some stability around current levels — and that’s a big if, Orton noted — then he believes that small- and mid-cap companies could benefit the most.
“The market was looking for an excuse to roll over,” Orton said. “If anything, it’s healthy to see some consolidation.” In his view, there is still some digestion that needs to occur in the near term, but investors can consider plenty of areas for putting money to work that are levered to long-term secular growth themes and aligned with current policy initiatives.
Although Trump’s quick pivot on E.U. tariffs has provided some temporary relief, Orton doesn’t think it’s sufficient to set the market off to the races again. He said that allocations from discretionary investors remain very overweight to the United States, particularly in exchange-traded and mutual funds, while systematic funds — notably, commodity trading advisors (CTAs) — have been the key driver of recent U.S. equity resilience. Over the medium term, there is scope for CTA activity to slow and outflows to rise as foreign investors continue pulling funds from the U.S.
“With earnings season essentially complete once we get NVIDIA’s report this week, I think the macro will move into the driver’s seat,” Orton said. Once that happens, he suggests paying close attention to the movement of longer-dated yields for cues to other, more nascent themes across the equity market.
“Yields have also been rising for the wrong reasons, leading to a renewed sell-off of the dollar and rise in gold and bitcoin,” Orton said. In addition to owning some amount of gold for diversification, he suggested that investors consider:
Developed market movements. Europe remains a strong candidate for foreign repatriation — particularly if investors see more policy bluster — which could provide a tailwind to performance. “International developed equities, especially in Europe, have had a very strong run,” Orton said. However, he warned that selectivity would be key. “Continued fiscal concerns in the U.S., coupled with some much-needed fiscal spending from countries like Germany, could provide an additional boost.”
Emerging market opportunities. “With 30-year yields up and the dollar down, it’s a supportive environment for the emerging market complex,” Orton said. He has been optimistic about select emerging markets (EM), like India and Brazil, as additional diversification opportunities. “EM central banks are now the most dovish since Covid, and a weaker dollar will be supportive,” Orton said. He recommends that investors keep an eye on this trend and consider using dips opportunistically to increase their portfolios’ diversification.
Looking beyond large- and mega-cap companies. “It has been a tough road down market cap, but their risk/return tradeoffs look favorable,” Orton said. “Given some of the concerns around the direction of yields, and their potential impact on the price action of smaller companies, it makes sense to focus more on mid-caps as a potential opportunity right now.” In fact, the Russell Midcap Index has outperformed the S&P 500 Index year to date.
Wednesday’s NVIDIA earnings are expected to be a significant market driver in a shortened trading week. On the economic front, the focus will be on consumer confidence indices and inflation data. The Conference Board Consumer Confidence Index® will shed light on how consumers are processing developments in the trade war. We will also get April Personal Consumption Expenditures (PCE) data for the United States. The May Federal Open Market Committee minutes will be released on Wednesday. And on Thursday, U.S. Federal Reserve (Fed) officials will present views from across the hawk–dove spectrum with public remarks from Tom Barkin, president of the Federal Reserve Bank of Richmond; Austan D. Goolsbee, president of the Federal Reserve Bank of Chicago; Mary C. Daly, president of the Federal Reserve Bank of San Francisco; and Lorie K. Logan, president of the Federal Reserve Bank of Dallas.
1 Unless otherwise indicated, all data cited is sourced from Bloomberg as of May 23, 2025.
Risk Information:
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Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Investing in bonds involves risks that may adversely affect the value of your investment such as inflation risk, credit risk, call risk, interest rate risk, and liquidity risk, among others. The two most prominent factors are interest rate movements and the credit worthiness of the bond issuer. Investors should pay careful attention to the types of fixed income securities that comprise their portfolios and remember that, as with all investments, there is the risk of loss of capital.
Bond Ratings: Ratings are by Moody’s, S&P, and/or Fitch. Ratings provided by nationally recognized statistical rating organizations, also called ratings agencies, are appraisals of a particular issuer’s creditworthiness, including the possibility that the issuer will not be able to pay interest or repay principal. Ratings are not recommendations to buy, sell or hold a security, nor do ratings remove market risk. Securities with the same rating can actually trade at significantly different prices. In addition, ratings are subject to review, revision, suspension, reduction or withdrawal at any time, and a rating agency may place an issuer under review or credit watch. Additionally, Fitch reports are available for municipal bonds. More about ratings is available at moodys.com, standardandpoors.com, and fitchratings.com.
Definitions
Basis points (bps) are measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.
Commodity trading advisors (CTAs) are investment professionals or firms that provide client-specific advice on buying and selling futures contracts.
The Conference Board Consumer Confidence Index® is a survey administered by The Conference Board that measures how optimistic or pessimistic consumers are regarding their expected financial situation.
Consolidation is a term used in technical analysis to describe when stocks reverse previous gains (or losses) to stay within well-defined trading levels.
The Federal Open Market Committee (FOMC) consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. The FOMC observes a blackout period, which begins at midnight of the second Saturday before each meeting. During the blackout periods, committee members do not make public comments about macroeconomic developments or monetary policy issues.
Fund flow is the net of all cash inflows and outflows into and out of a particular financial asset, sector, or index. It typically is measured on a quarterly or monthly basis. Investors and others look at the direction of fund flows for indications about the health of specific securities and sectors or the overall market.
A grey swan event is foreseeable and predictable but unlikely to occur. It is different from a black swan event, which cannot be predicted. Grey swan and black swan events both have substantial and far-reaching effects when they occur.
Hawkish, dovish, and centrist are terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.
Companies that are levered to long-term secular growth themes have earnings that directionally follow the expansion of those themes.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
Overbought is a term used to describe a security or group of securities believed to be trading at a level above its or their intrinsic or fair value.
Overweight describes a portfolio position in an industry sector or some other category that is greater than the corresponding weight level in a benchmark portfolio.
The Personal Consumption Expenditures (PCE) Price Index is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The PCE price index, released monthly by the U.S. Department of Commerce Bureau of Economic Analysis, is known for capturing inflation or deflation across a wide range of consumer expenses and reflecting changes in consumer behavior.
Secular growth trends are large-scale and ongoing changes in economies and societies that have the potential to drive broad and lasting economic, technological, social or other kinds of changes.
Tailwind is a term used to describe events or market forces that exert a positive influence on an investment’s performance. The opposite of a tailwind is a headwind, which contributes to an investment’s underperformance.
A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. A steepening yield curve results from a widening in the difference between short- and long-term interest rates. A steepening curve can reflect an expectation of stronger economic activity, rising inflation, and rising interest rates.
Indices
The S&P 500 Index measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The Russell Midcap® Index measures the performance of the mid-cap segment of the U.S. equity universe. It includes approximately 800 of the smallest securities of the Russell 1000® Index based on a combination of their market capitalization and current index membership and represents approximately 27% of the total market capitalization of the Russell 1000® Index.
The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 98% of the total market capitalization of the Russell 3000® Index.
The Russell 3000® Index measures the performance of the 3,000 largest U.S.-traded stocks, which represent about 96% of the total market capitalization of all U.S. incorporated equity securities.
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M-747297 Exp. 9/27/2025
