CERTA Market Update - May 2025

Market Update

Markets entered May looking for direction after a volatile April. While inflation appears to be cooling and earnings, especially in tech, continue to hold up, uncertainty around tariffs, Fed policy, and economic growth has led us to reassess our macro outlook. Here’s a quick breakdown of what we’re seeing, what’s changed, and what we’re watching next. 

Macro Stance

• Market Trend: Downgrade to Neutral

  • April marked the third straight down month.

  • Major indexes remain below all-time highs.

• Fed Policy: Neutral 

  • No rate change in April or May.

  • Inflation is softening, but the Fed is cautious.

  • Markets now show a slim majority expecting a cut in June

• Fiscal Policy: Downgrade to Neutral

  • Spending remains steady, but tariff uncertainty is a growing concern.

  • No new stimulus or major policy shifts.

• Key Economic Indicators: Neutral 

  • Inflation: Core CPI and PCE declined to multi-year lows.

  • Labor Market: Job growth exceeded expectations; wage growth is slowing.

  • GDP: First quarterly contraction since early 2022.

  • Consumer Sentiment: Retail sales surged in March, but sentiment has fallen four straight months.

• Valuations: Neutral  

  • S&P 500 continues to trade at elevated levels

  • International equities continue to outperform due to better valuations.

Market Regime & Business Cycle

• Our risk stance remains neutral due to mixed signals on economic growth.

• The business cycle remains between the mid- and late-stage, with recession risks muted.

  • Easing inflation and slowing growth point to deflationary pressure.

  • Resilient earnings and jobs suggest reflation.

Key Questions for May

1. What kind of recovery lies ahead—V, W, or U? April’s decline raises the question: is this a quick dip or the beginning of something more drawn out?

• A V-shaped rebound seems unlikely given current data

• A W-shaped path may emerge if earnings disappoint or policy risks flare up

• A U-shaped recovery could play out with a prolonged grind higher

2. Is economic growth under pressure? Q1 GDP declined, primarily driven by a surge in imports ahead of new tariffs. It’s more slowdown than collapse, but we’re closely watching consumer sentiment and spending trends.

3. Could tariffs and margin pressure dent earnings? Markets are priced for strong earnings, especially in U.S. growth stocks. But if rising input costs and slowing demand lead to downward revisions, we may see a repricing and renewed volatility.

Looking Ahead

While May is historically strong—positive in nine of the last ten years—we’re mindful of the headwinds: mixed economic data, policy uncertainty, and elevated market valuations. We remain cautiously balanced, closely monitoring the data and ready to adjust as market conditions evolve.

We appreciate your time and encourage you to share this update with anyone who may find it helpful.