Weekly Newsletter 05/16/25

Good afternoon and wishing you a wonderful weekend.

To quote the music greats, The Beastie Boys, “stop that train, I want to get off.”

What a wild ride over the last 6 weeks. After dropping 15% in 3 days, the S&P 500 has rebounded 22% since to recoup all of its losses (and then some). The S&P 500 is now in positive territory on the year and just 4% from all-time highs, as the Administration has significantly walked-back its trade tone and relieved worst-case concerns. I personally am surprised the rebound happened in such rapid fashion. I also believe we are not out of the woods from a possible repeat at some point.

Markets are still living in the echo of last weekend's notable step-down in US-China trade tensions, though not much incremental on that front today. Trump this morning said tariff rates for trading partners coming in the next few weeks, and reiterated dozens of countries asking for negotiations, but said it's not feasible to carry on all those talks. Some continued focus on Asian bent to trade negotiations, with USTR Greer at the APEC conference and news US and Japan are arranging another round of talks. Trump wrapping up his Middle East tour today, with the market having taken some positive signals from his trade updates this week (including upbeat AI headlines). Still a lot of noise around Republicans' push of Trump's “big, beautiful bill” (smh), with some opposition emerging around a key committee vote scheduled for today, though it may ultimately prove more of a scheduling delay than a firm roadblock.

After Monday's China tariff updates, Street economists revising views around growth, inflation, and Fed outlook, though forecasting challenges remain given uncertainty around details beyond 90 days. Goldman Sachs raised its 2025 growth forecast from 0.5% to 1%, cut recession odds to 35% from 45%. Still see Fed starting series of three rate cuts, though pushed back timing to December from July. JPMorgan flagged ongoing growth headwinds with effective tariff rate still at 14.4%, saying that is still $475B, or 1.6% of GDP, tax hike on households. BofA said agreement reduces downside risks to growth and upside risk to inflation, cut core PCE forecast by 0.5 pp to 3% by year-end. However, continue to see no Fed rate cuts this year, said it had already assumed lower effective tariff rate on substitution, tariff avoidance strategies, and expectation of eventual deal with China. Deutsche Bank economists calculate effective tariff rate of 15%, consistent with subdued but positive growth in 2H-25. However, call for Fed to cut just once this year in December remains unchanged.

As stocks continue to climb the wall of worry, bonds are having a different kind of impact. Many market watchers feel the Fed is behind schedule for an interest rate cut. From a Reuters article:

Few would find fault with the steady, gradual decline in U.S. inflation, but it has recently come with an unwelcome side effect: rising 'real' borrowing costs. With the Federal Reserve's official policy rate on hold and the benchmark 10-year Treasury yield edging higher, inflation-adjusted interest rates – so-called real rates – are rising, effectively tightening monetary policy and financial conditions. While real borrowing costs are not at levels that will trigger alarm bells with Fed officials, CEOs or CIOs, the direction of travel is pretty clear, and is one more factor that could weigh on the activity of consumers, businesses, and investors in an environment already shrouded in a thick fog of uncertainty. Additionally, for policymakers, it shines a light on the constant struggle to determine the optimal interest rate at any given time. In the U.S., the signaling behind today's rate moves is far from clear. If real yields are rising because investors are demanding a risk premium to hold dollars and Treasuries, then it's a cause for concern. If the upward shift reflects strong growth expectations, then that's much more positive.

Several U.S. tech companies were on the move higher this week as deal announcements came fast and furious during the President’s Middle East trip. Nvidia to initially supply Saudi Arabia's new AI company, Humain, with 18K GB300 Grace Blackwell products and its InfiniBand networking technology. In addition, Humain to get "several hundred thousand" of Nvidia's most advanced chips over next five years as it ramps up data center buildouts. AMD, Global AI, Amazon and Cisco some of the other US tech players that will work with Humain. Wedbush estimated that the market opportunity in Saudi Arabia could add another $1T to the broader global AI market in the coming years, a dynamic it does not believe is priced into the market or tech names. UAE another market of focus for US AI players. In addition, as previously reported, US rescinded the Biden AI Diffusion Rules that created three tiers of access for countries seeking AI chips. The irony of a Middle Eastern dictatorship (they say monarchy) naming their AI model “Humain” is so on point.

Before everyone became tariff experts, Artificial Intelligence (AI) was all the rage. This past Wednesday evening as we headed out as a family to celebrate my daughter’s boyfriend’s high school graduation (don’t ask…uff da) the topic of large language models came up (not in those exact words) as my wife asked said boyfriend to give us a speech. He typed “graduation speech” into his AI favorite (ChatGPT) and out came a fairly well done (and super cheesy) grad speech. My 13-year-old said she liked Snap’s AI, the 17-year-old said Gemini (Google’s model). The 49-year-old driver who grew up with a decade old set of encyclopedias and the Dewey Decimal System could only shake his head.

The link below contains additional financial topics and articles.
https://www.raymondjames.com/evangelista/resources

“The real question is not whether machines think but whether men do.”—B.F. Skinner in 1969

Thank you,

Kyle

KYLE CHRISTIANSON, CFP^®
Financial Advisor
Raymond James & Associates, Inc.
1421 Pine Ridge Rd, Ste 300
Naples, FL 34109
Toll Free (800) 843-2025 | Direct (239) 513-6525 | Main (239) 513-6500 | Fax (239) 596-5474
Kyle.Christianson@RaymondJames.com

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