Trust Investment Management
The equity markets rallied in May as trade tensions eased, and the economy remained resilient. The S&P 500 rose 6.29% bringing the year-to-date return back into positive territory. While U.S. equities outperformed international equities in May, international equities continue to dominate with robust returns for the year. Fixed income returns were mixed over U.S. debt, deficit, and inflation concerns.
Moody’s downgraded the U.S. rating from Aaa to Aa1 and changed their outlook from negative to stable. Investors were not stunned over the news since Standard & Poor’s was the first to cut the U.S. credit rating in 2011, followed by Fitch in 2023. Moody’s cited the one-notch downgrade reflects high debt and interest payment ratios. Be that as it may, they commented that the U.S. economy is unique and combines “very large scale, high average incomes, strong growth potential and a track-record of innovation that supports productivity and GDP growth.” Moody’s also expects that the U.S. dollar will remain the dominant global reserve currency for the foreseeable future.
In a recent press release, the Organization for Economic Cooperation and Development (OECD) lowered their GDP growth forecast for the U.S. to 1.6% in 2025 and 1.5% in 2026. They also lowered their global GDP growth forecast to 2.9% in 2025 and 2026 citing that “trade barriers, tighter financial conditions, weakened business and consumer confidence, and elevated policy uncertainty all pose significant risks to growth.” However, they also offered that “an early reversal of recent trade barriers could boost economic growth and help ease inflationary pressures.”
Inflation is trending down based on the latest Personal Consumption Expenditures Price Index (PCE) report. Core PCE increased 2.5% from one year ago. However, inflation may temporarily tick up due to higher tariffs. The labor market remains stable for the time being. Although the Fed is faced with a difficult task balancing price stability and employment, investors are expecting two 25 basis point rate cuts this year. While the U.S. economy is expected to slow, the probability of a recession appears to be declining.
