It Was Only a Matter of Time

June 9, 2025

Financial Markets

U.S. equity markets posted gains last week, with all three major indexes ending in the green. The S&P 500 was able to post its first close over the 6,000 mark since February 21^st. Despite some mid-week profit-taking, overall sentiment remained constructive, and modest selling after a strong run should not be a cause for concern.

Economic releases were generally positive, though somewhat mixed. We will examine them in more detail in the Economics section. Labor market figures and productivity trends are particularly relevant, and we also touch on the newest sideshow—the feud between Elon Musk and Donald Trump.

Economics

Economic data last week painted a largely neutral picture. The Bureau of Labor Statistics reported that nonfarm payrolls rose by 139,000 in May, exceeding expectations of a 126,000 gain, while the household survey confirmed a stable unemployment rate of 4.2%. However, not all labor statistics for the week were positive, with manufacturing payrolls contracting, the participation rate falling, and unemployment claims coming in higher than expected. Notably, wages continued to move higher—a positive sign for future consumer spending. Taken together, the labor market appears resilient, though with signs of softening at the margins.

Meanwhile, trade policy remains a source of uncertainty. Tariff rhetoric from the administration has become less predictable, with the president often using tariffs as a negotiating tool rather than a consistent policy mechanism. While fewer new tariffs have been implemented lately, the threat of their return continues to complicate strategic planning for both investors and businesses. Tariffs can restrict global trade, raise input costs, and ultimately push up prices—yet the lack of follow-through has left the private sector unsure how to prepare.

Tensions also persist between the Federal Reserve and the White House. While such tensions are not new, the level of public disagreement is unusual. The Fed appears committed to holding interest rates steady unless inflationary pressures materially subside, including those related to potential tariffs. It is extremely unlikely, in our view, that the Fed will adjust course purely in response to political pressure.

In a more surprising twist, Elon Musk and President Trump, previously close allies, have entered into a highly public feud. While seemingly political on the surface, the development could have real economic implications. Some Republican lawmakers, especially those concerned about reelection funding, may become more willing to break ranks on the pending tax legislation if Musk signals financial support for opposition efforts. This political rupture adds another layer of uncertainty in an already unsettled environment.

Were it not for political interference, the U.S. economic outlook would appear far more constructive. Less than five months ago, as the transition between administrations was underway, many were optimistic about the country’s economic future. Instead, a degree of confusion has taken hold. Trade policies, public conflicts with the Fed, and unpredictable political realignments have led investors to question what’s next.

For now, the economy remains on relatively neutral footing. However, it is clear that politics, particularly tariff developments and internal party dynamics, will continue to be a significant factor influencing investor sentiment.

Conclusion

Political uncertainty continues to cast a long shadow over the economic outlook. With global and domestic politics in flux, it is difficult for economists or investors to project the path forward with confidence. The internal conflicts within the Trump administration—now amplified by high-profile rifts—only add to the unpredictability.

We’ve said before that the midterm elections and polling data leading up to them will play an outsized role in shaping economic policy. That remains true today. In this environment, we do not believe it makes sense for investors to take outsized risks. A prudent approach, focused on quality and flexibility, remains the best course of action.

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