Weekly Comment

Geopolitical Tensions on the Rise: What’s the Impact on Oil Markets? 

A ceasefire was recently reached between Israel and Iran, yet tensions flared again after the U.S. launched airstrikes on Iranian nuclear sites. In response, Iran threatened to close the Strait of Hormuz—a key passage for global oil shipments. 

Here are three key points to help put the situation into perspective: 

• Limited Immediate Impact: Iran accounts for only 3% of global crude supply and exports just half of that. Shutting down Hormuz would hurt its own economy. 

• Strategic Reserves Are Ready: OECD countries hold 1.2 billion barrels in reserves—enough to cover up to 60 days of exports through Hormuz. 

• Oversupply Ahead: Global demand is expected to grow by less than 1% this year, while supply could grow more than three times as fast, driven by Brazil, Norway, and adjustments in OPEC+ output. 

Market Implications 

S&P 500 companies have very limited direct exposure to Iran and Israel. In the short term, market sentiment may drive volatility. But from a broader perspective, oil market fundamentals remain relatively balanced. 

Over the past 30 years, markets have shown resilience. Following similar geopolitical events, the S&P 500 has delivered an average return of nearly 8% over the next 12 months. 

Source: Raymond James 

Fed sticks with rate cut outlook, but lowers growth forecast. 

As expected, the Federal Reserve kept its interest rate unchanged at 4.25%-4.50%. While uncertainty has eased somewhat, the Fed emphasized that lingering risks still call for a cautious approach. 

The latest dot plot shows that expectations for two rate cuts in 2025 remain. However, seven members of the Committee now anticipate no rate cuts in 2025. The Fed also revised its GDP growth forecast downward to 1.4% (from 1.7% in March) and raised its core inflation projection to 3.1%. 

Updated projections point to a softer labor market, with unemployment expected to reach 4.5%. No changes were announced to the Fed’s balance sheet reduction plans. 

Market Takeaway: 

The statement confirms a cautious stance in response to slower growth, tariff pressures, and lingering inflation risks. While rate cuts are still in the forecast, the Fed acknowledges that balancing growth and inflation will be more challenging. 

Fed Indicators Update (June vs. March) 

Source: Federal Reserve 

May Inflation: A Softer Reading 

The latest U.S. inflation report came in better than expected. Consumer prices (CPI) rose just 0.1% in May and 2.4% over the past year, matching forecasts. Core inflation (which excludes food and energy) also increased by only 0.1%, bringing the annual rate down to 2.8% — both lower than anticipated. 

Gasoline, used cars, and clothing saw notable price drops, while services like housing and insurance continued to show moderate increases. Despite this progress, the Fed has yet to signal that a rate cut is coming anytime soon. 

Market Takeaway: 

Investors are still expecting the first rate cut to happen in September, while keeping an eye on the impact of tariffs and signs of a slowing economy. 

Annual inflation dropped from 3.3% in May 2024 to 2.4% in May 2025, showing a clear slowdown in recent months. 

Source: Bureau of Labor Statistics. 

Recent court decisions keep tariff policy in the spotlight. 

Tariff update: mixed signals from the courts 

In recent weeks, U.S. trade policy has returned to the spotlight. A ruling by the Court of International Trade suggested potential changes, but a federal appeals court has temporarily blocked that decision. As a result, current tariffs—covering sectors like steel, aluminum, and autos—remain in place. 

This ongoing legal tug-of-war is prolonging uncertainty for businesses and investors. Here’s a quick summary of the potential impacts: 

• Economic impact: A hypothetical reduction in tariffs could lift GDP by 0.1% for every one percentage point drop in average rates, with a similar effect on inflation. But for now, it’s all still under negotiation. China has pushed back against the latest U.S. accusations. 

• Market reaction: While the S&P 500 has shown signs of recovery, several headwinds remain—high valuations, 10-year Treasury yields hovering near 4.5%, fiscal uncertainty, and pressure on corporate margins. New tariffs could also emerge in sectors like semiconductors or pharmaceuticals. 

Market implications: 

Tariff policy remains uncertain — and likely to stay in focus. Until there’s more clarity, volatility may continue across markets. 

CEO confidence just saw its sharpest quarterly drop in nearly 50 years, driven in part by trade policy uncertainty. 

Source: Raymond James 

A look at summer market prospects: Between strong historical trends and new risks on the horizon. 

This old Wall Street saying tends to resurface around Memorial Day, suggesting investors reduce their exposure to stocks during a seasonally weaker period. But history doesn’t fully support that view. Over the past decade, the S&P 500 has averaged a +3.9% gain between Memorial Day (May 26) and Labor Day (September 1), closing higher 80% of the time. 

Still, summer isn’t without risks. Trade tensions, downward revisions to earnings estimates, and a recent rise in interest rates could weigh on investor sentiment. For example: 

• Tariff effects may catch up: While the economy has shown resilience, growth is expected to slow in the second half of the year as tariffs begin to more noticeably impact consumer spending and business investment. 

• Corporate earnings outlook: Q1 2025 surprised to the upside. However, many earnings reports still don’t fully reflect the new trade environment. Full-year EPS estimates have started to come down, though they remain relatively optimistic, projecting +10% annual growth. 

• Rising long-term rates: With the 10-year Treasury yield now above 4.5%, valuation pressures are building – especially in interest-rate-sensitive sectors like real estate. 

Market implications: 

While history suggests summer can be a constructive period for markets, current conditions make it harder to rule out potential volatility. 

On average, the S&P 500 has seen a drawdown of roughly 7% at some point between May and September over the past decade. 

Source: Raymond James

Q1 2025 ended on a strong note, despite ongoing challenges in the economic landscape.

With nearly 85% of S&P 500 companies having reported, the first-quarter earnings season for 2025 showed encouraging strength. Earnings per share (EPS) grew 12% year over year, well above expectations. But corporate commentary also reflected a more cautious tone: mentions of terms like “tariffs” and “recession” rose sharply in investor calls. While consumer spending held up, some pressure is beginning to show in industries like restaurants, airlines, and premium retail. 
On the other hand, mega-cap tech companies stood out. Their earnings grew 29% year over year (vs. 9% for the rest of the S&P 493), driven by strong AI investments. Interestingly, their valuations relative to the broader index are now at their lowest since 2017. 

Market implications: 

Q1 2025 earnings helped support the S&P 500’s rebound in April, but they reflect past performance. Expectations for the rest of the year continue to trend lower and could be revised further as economic headwinds persist. 

Q1 2025 Earnings: Double-digit growth delivered. 

Source: Goldman Sachs. 

The Federal Reserve kept rates unchanged but struck a more cautious tone.  

A Pause Amid Uncertainty  

Job Market Stays Strong, But Economic Uncertainty Tempers Expectations for Quick Changes  

As expected by markets, the Federal Reserve kept its benchmark interest rate steady at 4.25%–4.5%, a level it has maintained since December. While the labor market remains solid, with 177,000 new jobs added in April, the Fed acknowledged growing economic challenges.  

Inflation remains high, and after the GDP contraction in Q1, the Fed’s statement highlighted a rise in economic uncertainty. The Fed stressed its commitment to monitoring risks that could impact its dual mandate: keeping inflation under control and supporting employment.  

According to Jerome Powell, weaker consumer and business outlooks are largely due to an uncertain trade environment.  

Looking ahead, the Fed reiterated that it’s prepared to adjust its policy stance if needed. Following the announcement, expectations for a rate cut in June dropped significantly.  

Market Implications  

The outlook remains uncertain. While the Fed held rates steady, the lower likelihood of immediate cuts highlights the importance of closely watching the economic and trade landscape.  

Fed Funds Rate Expectations  

Source: JP Morgan

Discover how alternative assets strengthen portfolios in uncertain times. 

The strategic role of alternative investments 

In an increasingly dynamic economic environment, relying solely on traditional stocks and bonds can leave portfolios more exposed to concentration risk and market sensitivity. Alternative assets open opportunities to diversify, hedge against inflation, and enhance long-term resilience. 

How each asset class contributes: 

• Private credit: Generates attractive income with floating rates that mitigate interest rate risk. 

• Private equity: Captures innovation and growth opportunities outside the public markets. 

• Real assets (Real Estate and Infrastructure): Provide stable cash flows, inflation protection, and long-term contracts. 

• Hedge funds: Reduce volatility and deliver returns with low correlation to traditional markets. 

Rather than simply seeking exceptional returns, the focus is on complementing and strengthening the portfolio with instruments that add true stability and diversification in challenging economic contexts. 

Market implications: 
Incorporating alternative investments into traditional stock and bond portfolios can help manage risk and enhance returns. 

Risk–Return Profile of a Traditional Portfolio Including Alternative Investments (Q1 1990 – Q3 2024) 

Source: JP Morgan 

Key insights to stay focused and invest strategically in a changing environment.

Market volatility in perspective: 5 key ideas

The recent 90-day tariff pause has not eliminated uncertainty in the markets. While ups and downs continue, history reminds us that volatility is often temporary and that markets have a remarkable capacity to recover. Here are five key ideas to help maintain perspective and stay focused on your long-term goals:

1. A long-term view changes everything. Stepping back from day-to-day noise allows for better decision-making. Just like in 2018, markets can bounce back strongly—as they did in 2019.
2. Recoveries often follow declines. After a drop of more than 15%, markets have risen an average of 52% in the following 12 months. Keep the inversion is often wiser than reacting.
3. Bear markets are shorter than they seem. On average, they last 12 months compared to 67 months of bull markets. Trying to anticipate them may mean missing out on recovery opportunities.
4. Fixed income brings stability. During equity market corrections, high-quality bonds have shown their defensive role.
5. Staying invested is the best strategy. Discipline has consistently paid off. A portfolio invested in the S&P 500 over the last decade would have tripled in value despite the COVID pandemic and interest rate hikes.

Market implications: History doesn’t repeat itself. A diversified portfolio and a long-term approach remain the best tools for navigating uncertainty.

Market returns have historically been strong following significant downturns.

Source: CapitalGroup

Inflation slowed in March and is moving closer to the Federal Reserve’s target. 

Key highlights from the report: 

The Consumer Price Index (CPI-U) fell 0.1% in March, marking a positive shift compared to the 0.2% increase in February. This decline reinforces the trend toward more controlled inflation amid a still-challenging monetary policy environment. 

• Annual inflation: 2.4%, down from 2.8% in February and better than the estimated 2.6%. 

• Energy: -2.4% monthly, driven by a 6.3% drop in gasoline prices. 

• Food: +0.4%, with increases both at home and away from home. 

• Core inflation: +0.1% monthly and +2.8% annually, the smallest increase since March 2021. 

• Shelter: +0.2% monthly, +4% annually, the lowest rise since 2021. 

• Other categories: Declines in airfare, used cars, insurance, and recreation. 

The report suggests a gradual yet steady slowdown, bringing inflation closer to the 2% target. However, the Fed remains cautious due to persistent pressures in certain sectors and uncertainty surrounding trade policies. 

Market implications: 
The consensus now expects between three and four federal funds rate cuts (currently at 4.25%-4.50%) throughout the year. No changes are anticipated for the upcoming May 7 meeting. 

Year-over-year percentage change in headline and core inflation 

Source: U.S. Bureau of Labor Statistics