2025 Week 23

1. May’s Market Strength Defies the “Sell in May” Narrative

The S&P 500 rose 6.3% in May, marking its best performance for the month since 1990. This contradicts the popular “Sell in May and Go Away” adage, which has proven misleading for long-term investors. Historically, the May–October period still yields an average annualized return of +6.6%, with stocks rising 72% of the time.

Key Takeaway: Market timing based on seasonal patterns remains unreliable—staying invested pays off over time.

2. The TACO Trade: Tariff Tensions and Pattern Recognition

Markets are rebounding as investors bet that tariffs won’t stick. The so-called “TACO trade” (“Trump Always Chickens Out”) has once again played out, with the S&P 500 up 5% since the recent tariff announcement. This rally is driven by expectations of eventual policy reversals, consistent with past behavior.

Key Takeaway: Markets are reacting less to policy announcements and more to expected political backtracking.

3. Nvidia Surges Past Microsoft Despite Slowing Margins

Nvidia posted a 69% YoY revenue increase, reaching $44B, but net income fell to $18.8B in Q1 from $22.1B due to a $4.5B charge tied to Chinese export restrictions. Despite margin compression (43% vs. 57% a year ago), investors pushed its market cap to $3.46T, surpassing Microsoft.

Key Takeaway: Nvidia’s growth story remains dominant, though headwinds are beginning to test investor optimism.

4. Inflation Shows Signs of Cooling

April’s PCE index showed core inflation easing to 2.5% from 2.7%, supporting hopes that inflationary pressures may be stabilizing. This aligns with falling yields across Treasury maturities, with the 30-year dropping to 4.91% and the 10-year settling at 4.39%.

Key Takeaway: Slower inflation and lower yields are strengthening the case for policy easing later this year.

5. Earnings Growth Remains Strong But Slows

S&P 500 companies delivered 12.9% YoY earnings growth in Q1, a step down from Q4’s 17.8%. Healthcare led all sectors with a 43% increase. Despite the moderation, this marks the second consecutive quarter of double-digit earnings gains.

Key Takeaway: Corporate earnings remain resilient but could face pressure in the second half of 2025.

6. Rising Delinquencies Reflect Consumer Strain

Consumer debt stress is escalating: 12% of U.S. credit card balances are now over 90 days delinquent—the highest since 2011. Auto and student loan delinquencies are also rising. While the labor market remains stable, consumer credit health is worth monitoring.

Key Takeaway: Beneath the surface, household balance sheets are weakening in key credit segments.

7. Headlines, Wealth Shifts, and Stats to Watch

A proposed tax break for those 65+ would disproportionately benefit the wealthiest generation, who now hold 31% of household wealth. Meanwhile, Waymo has scaled to 700,000 rides/month in California, and home price appreciation since 2000 remains steep across most developed markets.

Key Takeaway: Wealth dynamics and automation trends are accelerating structural shifts in the economy.

Next week, investors will closely watch the May jobs report and early June inflation signals for clues on Fed policy direction.

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