Fixed Income Update
Bond investors focused on labor market data and foreign central bank decisions this week. While benchmark Treasury yields ended the week just a few basis points higher, that masks some of the largest intraday moves seen in recent weeks.
The rally in Treasuries began midweek, sparked by weaker-than-expected economic data. On Wednesday, both the May ADP Employment Report and the ISM Services Index disappointed, triggering a sharp bond rally that drove yields lower by as much as 10 basis points. The data underscored investor sensitivity to any signs of a slowing economy. ADP reported that private employers added just 37,000 jobs in May—well below the expected 114,000 and April’s revised gain of 60,000.
Thursday’s momentum stalled after the European Central Bank (ECB) cut interest rates, as expected, but signaled that further easing may not follow. ECB President Christine Lagarde stated that the central bank is nearing the end of its monetary policy cycle, which pushed European sovereign yields higher by more than 5 basis points in some cases. U.S. Treasury yields moved in tandem, overriding a softer U.S. jobless claims report released earlier in the day, which showed a surprising uptick in unemployment filings.
On Friday, investors digested another key labor report. U.S. nonfarm payrolls showed an increase of 139,000 jobs in May—above the expected 126,000. The unemployment rate held steady at 4.2% for a third consecutive month. However, downward revisions to the prior two months’ data, totaling 95,000 jobs, more than offset May’s upside surprise. The mixed report added upward pressure on yields as investors continued to recalibrate expectations for Fed rate cuts. Futures markets now point to September as the earliest likely timing for a policy move.
Meanwhile, on the trade front, markets welcomed signs of easing tensions between the U.S. and China. A Thursday phone call between President Xi Jinping and President Trump—their first since Trump’s inauguration—suggested progress in trade negotiations. Following the call, expectations rose for the resumption of Chinese rare earth mineral exports, signaling potential improvement in the overall tone of trade relations.
As the week ends, Fed officials are entering their blackout period ahead of the June 18 policy meeting, leaving markets to navigate the next stretch without additional guidance from central bank speakers.
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As of June 6, 2025
* Composite A ** General Obligation AA+ *** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies). **** Futures price per gallon |
Stock Market Update
June got off to a positive start this week. Continued upward momentum pulled both the Dow Jones Industrial Average (Dow) and the Nasdaq Composite into the black year-to-date. As of Thursday’s close, year-to-date performance for these major domestic equity indices is as follows: Dow +0.26%, S&P 500 +1.56%, Nasdaq Composite +0.23%, and Russell Mid Cap +1.64%. The only index still in negative territory is the Russell 2000, down 5.42%.
It has certainly been a rocky ride since the market drawdown began on February 19th. But since the market low on April 8th, the equity indices have staged an impressive rally. Over these past eight weeks (April 8th – June 5th), the Dow is up 12.8%, the S&P 500 is up 19.5%, the Nasdaq Composite is up a whopping 26.5%, the Russell Mid Cap is up 19.5%, and the Russell 2000 is up 19.4%.
Focus this week was on economic data, in particular the non-farm payroll print on Friday. Throughout the week, investors pondered a busy parade of economic data, among them: 1) the Institute for Supply Management’s (ISM) May Manufacturing Index reading of 48.5 missed expectations of 49.5 and was the weakest since last November, with participants noting softening demand due to higher prices and greater macro uncertainty; 2) April JOLTS job openings of 7.39 million came in higher than the consensus estimate of 7.10 million; 3) April factory orders dropped by 3.7%, steeper than the expected 3.0% decline and disappointing versus last month’s 3.4% increase; 4) ADP’s May private payrolls of 37,000 came in well below the expected 130,000, and the lowest since March 2023; 5) the May ISM Services Index came in at 49.9 (just dipping into contractionary territory), notably below the expected 52.2 and April’s 51.6—and the lowest since June 2024; and 6) weekly initial jobless claims rose more than expected, to 247,000 from 239,000 last week (the highest since October 2024), although continuing claims were a bit lighter than expectations. The tone of these data was mostly downbeat and gave investors pause leading into Friday’s release of the May non-farm payroll data.
The Bureau of Labor Statistics brought a surprise on Friday morning when it reported that the nation added a better than expected 139,000 jobs in May (versus the expected 130,000). Although both April and March job additions were revised down to 147,000 and 120,000, respectively (for a total two-month negative revision of 95,000), investors took the news as a reflection of labor market stability in the face of elevated macro uncertainty. Jobs continued to grow in healthcare and leisure/hospitality and there was a limited drag from lower federal employment. Overall, the market takeaway was that the data reinforced the notion that the job market is only gradually cooling off despite the unsettled tariff backdrop, and that the Federal Reserve (Fed) can afford to wait on any interest rate changes until more data offers a clearer signal—and should bolster its patience-amidst-uncertainty mantra. Equity indices rallied nicely on Friday morning, with the Dow up 0.8%, the S&P 500 up 0.9%, the Nasdaq Composite up 1.2%, the Russell Mid Cap up 0.8%, and the Russell 2000 up 1.3%.
Tariff policy “gamesmanship” also remained in the news. President Trump announced a doubling of steel and aluminum tariffs to 50%, effective June 4th, claiming higher levies would further protect the US industrial metals industry. In addition, he accused China of reneging on the two countries’ recent agreement to conduct negotiations. The US also expressed concern that China is “slow-walking” its agreed rare-earth exports, and that this is slowing manufacturing here. Meanwhile, China accused the US of violating the May trade deal and vowed to take measures to defend its interests. Trade tensions seem to be ramping up again, although there is hope that a late week phone call between President Trump and China’s Xi might help cool tensions. Trump noted that the call “resulted in a very positive conclusion for both countries” and that trade teams will be meeting shortly.
As of June 5, 2025
|
Index |
Current Week |
Month of Jun. |
YTD |
|
Dow Jones Industrial Avg. |
0.18% |
0.18% |
0.26% |
|
S&P 500 |
0.49% |
0.49% |
1.56% |
|
Nasdaq |
0.98% |
0.98% |
0.23% |
|
MSCI EAFE |
1.06% |
1.06% |
18.55% |
|
Russell Mid Cap |
0.57% |
0.57% |
1.64% |
|
Russell 2000 |
1.53% |
1.53% |
-5.42% |
