Market Commentary | June 2025
- Daniel Wildermuth
- Jun 3
- 3 min read
Markets Rebound as Trade Tensions Ease
Investor sentiment took a decisive turn for the better in May, as easing trade tensions and resilient economic data lifted U.S. equities back to roughly even for the year. All major stock indices posted strong gains, with the S&P 500 and Nasdaq Composite on track for their best month since November 2023—and their strongest May performance since 1990. Markets have grown less reactive to the volatility of trade policy, as investors increasingly bet that the worst of President Trump’s trade war is behind them.
Beyond tariffs, sentiment has also been buoyed by robust corporate earnings and better-than-expected economic data. Companies in the S&P 500 have reported around 13% profit growth for Q1, according to FactSet. On the macroeconomic front, consumer confidence rebounded in May, durable goods orders fell less than expected, and labor markets continue to expand steadily. Inflation, while still a concern, remains relatively mild.
Still, optimism is not without its cracks. A recent report from the Conference Board revealed that CEO confidence fell by the most on record (since the survey began in 1976) in the second quarter, suggesting that corporate leaders may be growing more cautious even as markets rally. Concerns over fiscal deficits, a weakening dollar, and high interest rates continue to raise questions about the durability of the current upswing.
Meanwhile, legal uncertainty lingers around trade. A federal appeals court temporarily stayed a ruling that had invalidated Trump-era tariffs, pending further legal review. Though the stay doesn't address the underlying legality, it adds another layer of unpredictability to trade policy.
Valuations remain a headwind for investor sentiment. U.S. stocks are still expensive by historical standards, with the S&P 500 trading at 21 times expected earnings—well above its 10-year average of 18.7. Globally, equities also look costly, ending last year at 23 times forward earnings versus just 14x in global markets.
While strong earnings growth has supported U.S. valuations, the premium leaves little margin for error. Some investors are turning to international markets for more attractive valuations, while others point to the superior historical performance of U.S. equities. Though markets have stayed resilient during past periods of elevated valuations—such as the 1990s tech boom—history suggests that lofty valuations often weigh on long-term returns.
Still, not everyone sees cause for concern. Morgan Stanley remains bullish on U.S. assets, arguing that global alternatives remain limited. Their view aligns with the enduring “TINA” mantra—there is no alternative. Similarly, NYU’s Aswath Damodaran, often dubbed by Wall Street as the “dean of valuation,” contends that traditional metrics underestimate future growth. His forward-looking risk premium model which incorporates analyst forecasts suggests U.S. stocks may be more reasonably priced than they appear.
For now, the mood of the market is improving but remains fragile. Investors are cautiously optimistic, betting that the path of trade policy, economic growth, and inflation will continue to support further gains. Whether that optimism proves durable will depend on how those forces evolve in the months ahead.
- Daniel Wildermuth, Portfolio Manager
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