In May, equity and bond markets grew actively amid the start of trade tariff negotiations. Markets are currently pricing in a scenario of minimal tariffs and a slight increase in inflation in the United States. Stock indices rose by 6-9% over the month, while bond indices increased by 1-1.5%.
In the first quarter, U.S. GDP declined by 0.3%, solely due to a sharp rise in imports of goods and gold ahead of the tariff announcements in early April. However, analysts expect GDP growth to recover in the second quarter and stabilize at around 1.5% in the second half of the year.
The impact of tariffs on inflation remains minimal for now; analysts anticipate some acceleration of inflation from 2.7% to 3% in the second half of the year. However, these forecasts could be revised downward, considering that Trump is prepared to significantly reduce tariffs during the negotiations.
The 20% drop in equity markets from their peaks at the beginning of the year essentially priced in a recession risk, while the rapid recovery seen in May sets a scenario for sustained economic growth around 2% amid the introduction of minimal trade tariffs.
The S&P 500 index valuation at 21.8x is only 5% below previous highs, implying limited growth potential until the end of the year. Partly, this high valuation is due to very strong results from IT companies, which show leading profit growth driven by strong demand across the economy for computing power related to AI implementation. However, a new wave of uncertainty linked to the next round of tariff negotiations at the end of June may lead to another market correction.
Companies in the U.S. have not yet priced in the effect of potential tariffs and remain uncertain, postponing development and business expansion projects. This could slow economic activity over the next 2-3 quarters, though business expectations remain positive.
The bond market has recovered after a massive outflow of foreign investors from U.S. government bonds in April and May but remains uncertain. On the one hand, lower inflation risks are positive for prices; on the other hand, investors are concerned about Trump’s desire to increase the budget deficit by cutting taxes.
Oil prices remain near $65 amid Saudi Arabia’s intention to further increase production by 0.4 million barrels per day. OPEC continues to fight for market share and is ready for a new price cut. We maintain our forecast of Brent prices in the $60-70 range through the end of the year.
Gold prices have stabilized near $3,300 per ounce, as financial investors and central banks have paused gold purchases awaiting a final decision on tariffs. We believe gold will resume growth and expect it to reach $3,800 by year-end.
Overall, we recommend reducing equity exposure, as we see limited potential for index growth in the coming months. We also recommend increasing money market fund allocations, as we expect interest rate cuts only in the fall.
In the first quarter, U.S. GDP declined by 0.3%, solely due to a sharp rise in imports of goods and gold ahead of the tariff announcements in early April. However, analysts expect GDP growth to recover in the second quarter and stabilize at around 1.5% in the second half of the year.
The impact of tariffs on inflation remains minimal for now; analysts anticipate some acceleration of inflation from 2.7% to 3% in the second half of the year. However, these forecasts could be revised downward, considering that Trump is prepared to significantly reduce tariffs during the negotiations.
The 20% drop in equity markets from their peaks at the beginning of the year essentially priced in a recession risk, while the rapid recovery seen in May sets a scenario for sustained economic growth around 2% amid the introduction of minimal trade tariffs.
The S&P 500 index valuation at 21.8x is only 5% below previous highs, implying limited growth potential until the end of the year. Partly, this high valuation is due to very strong results from IT companies, which show leading profit growth driven by strong demand across the economy for computing power related to AI implementation. However, a new wave of uncertainty linked to the next round of tariff negotiations at the end of June may lead to another market correction.
Companies in the U.S. have not yet priced in the effect of potential tariffs and remain uncertain, postponing development and business expansion projects. This could slow economic activity over the next 2-3 quarters, though business expectations remain positive.
The bond market has recovered after a massive outflow of foreign investors from U.S. government bonds in April and May but remains uncertain. On the one hand, lower inflation risks are positive for prices; on the other hand, investors are concerned about Trump’s desire to increase the budget deficit by cutting taxes.
Oil prices remain near $65 amid Saudi Arabia’s intention to further increase production by 0.4 million barrels per day. OPEC continues to fight for market share and is ready for a new price cut. We maintain our forecast of Brent prices in the $60-70 range through the end of the year.
Gold prices have stabilized near $3,300 per ounce, as financial investors and central banks have paused gold purchases awaiting a final decision on tariffs. We believe gold will resume growth and expect it to reach $3,800 by year-end.
Overall, we recommend reducing equity exposure, as we see limited potential for index growth in the coming months. We also recommend increasing money market fund allocations, as we expect interest rate cuts only in the fall.