Below are the economic and market highlights for the week:
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The Fed’s preferred inflation gauge, the core PCE Index increased 0.20% in May, bringing the twelve month inflation rate to 2.70%. That’s higher than the Fed’s 2.00% target rate. Consumer spending and personal income numbers were also released, showing spending fell 0.10% for the month while personal income declined 0.40%. The weak spending and income figures suggest consumers are opting for the sidelines while economic uncertainty remains.
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Durable goods orders surged 16% in May, reversing April’s 6.60% slide. The headline number was driven by a 230.80% jump in commercial aircraft orders. Boeing led the charge, reporting 303 aircraft orders including a 150 aircraft order it received from Qatar Airways during President Trump’s visit to the country in May. Excluding transportation, new orders for manufactured goods rose a solid 0.50% in May. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded 1.7% in May after an upwardly revised 1.40% decline in April. The data suggests businesses continue to spend in hopes of a 2H 2025 recovery.
- he spring/summer homebuying season was off to a sluggish start. In May, existing home sales climbed 0.80% to a seasonally adjusted annual rate of 4.03 million. That was the slowest pace for the month of May since 2009. The rise in sales came despite an increase in the median home price, which rose 1.30% yoy to $422,800. Prices managed to climb even as inventory rose 6.20% month-to-month to 1.54 million homes. That is equivalent to a 4.6 months’ supply, moving closer to the six to seven months considered to be a healthy balance between supply and demand. New homebuilders also struggled in May as sales fell 13.70% to a seasonally adjusted annual rate of 623K. That was the lowest level since October 2024. New home inventory also increased, up 507K in May. That represents a 9.8 month supply, the highest in nearly three years and up from 8.3 months in April. Despite higher inventory, the median price of new homes also rose, reaching $426K – a 3% month-to-month increase. Economists attribute May’s weak showing mainly to high mortgage rates. A potential drop in interest rates later this year could help reignite the housing market.
Stocks Primed to Close Q2 2025 on a Record High
With just one more trading day left in the second quarter, investors looked poised to close the quarter on a high note. The S&P 500 finished Friday’s trading session with a new record high in hand, surging more than 27% from its market lows in April. That is a remarkable feat considering the index was down nearly 18% in the spring when Trump surprised markets with the magnitude and breadth of the tariffs announced on Liberation Day. The announcement initially sent consumers and businesses on a spending spree in order to beat the tariffs but subsequently triggered a pullback in activity as the administration continued adjusting the terms and timelines throughout late April and May. With the administration having softened its stance in recent weeks, bulls have grown increasingly optimistic that the economic impact will be minimal, sending markets on a tear. Sentiment remained strong despite the Israeli/Iranian War, which initially roiled oil markets and could have devolved into a long-lasting conflict. Fortunately, cooler heads prevailed, and the two countries struck a ceasefire, helping markets continue their advance.
Despite some major deadlines and events on the horizon, investors believe the setup for Q3 looks quite positive. This sentiment was mirrored in markets on Friday where both the S&P 500 and Nasdaq closed at record highs. Over the past week alone, a major war was averted, numerous trade deals appear to be coalescing, with China in particular announcing details of a U.S. trade framework, rate cuts are back in the picture, and Republicans appear to be inching closer to a workable budget deal. No question, it was a positive week, with the S&P 500 rising 3.44%, but next week the market will no doubt refocus on those items that lie ahead—the most significant being what happens on July 9th, when Trump has said he will reimpose reciprocal tariffs on those countries that have yet to strike a deal. Trump, ever the negotiator, has declined to indicate just how firm that deadline remains, even while his Treasury Secretary, Scott Bessent, has signaled the administration will likely extend the deadline to Labor Day. July 11th kicks off the earnings season, with the big banks leading the reporting. Earnings are expected to be mediocre, but investors may give companies a pass for their Q2 performance, given that two rate cuts are still penciled in. Rates could fall further if the Federal Reserve follows through on its proposal to overhaul reserve requirements, allowing the major banks to deploy more funds into the U.S. Treasury markets and put additional downward pressure on rates. With the lag effect from the tariff-driven slowdown still trickling in, investors will have to balance their optimism about the second half of the year against a stream of lackluster economic data in the near term.
Q2 was certainly a tale of two halves, but it managed to finish on an optimistic tone. Whether that optimism will be rewarded is set to be tested early on, however, with trade, rates, and earnings all taking center stage over the next several weeks.
The Week Ahead
Markets will be closed on Friday for the 4th of July holiday. Week in Review will pause in observance. Our next edition arrives on July 11th with the latest nonfarm payrolls, manufacturing, and services reports.
The Ballad and the Battle
Next week, Americans will gather to celebrate the Fourth of July, commemorating the 1776 signing of the Declaration of Independence and the establishment of the United States as a sovereign nation. As Americans prepare for red-white-and-blue celebrations, one iconic tune will likely be heard over fireworks, parades, and other celebrations: The Star-Spangled Banner. The national anthem carries with it an unexpected history.
“The Star-Spangled Banner” was originally known as “The Defence of Fort M’Henry,” a four-stanza poem written by American lawyer Francis Scott Key after witnessing the dramatic 25-hour British bombardment of Fort McHenry in Baltimore, MD during the War of 1812. A week earlier, Key had negotiated the release of his friend who was being held prisoner on board a British ship in the Baltimore Harbor. Key learned of the impending attack and was not allowed to leave the ship until after the bombardment. When it was over, Key was deeply inspired by the sight of a lone American flag – not the British Union Jack – flying over the Maryland fort at daybreak and announcing a U.S. victory.
Key’s poem was printed in newspapers at the time, but the first stanza is the only one that we hear in today’s national anthem. It was eventually set to a unique piece of music: the tune of a popular drinking song called “To Anacreon in Heaven” composed for a British social club. No one seemed to mind that detail, and in 1916, President Woodrow Wilson announced that the song should be played at all official events. The United States declared it the national anthem in 1931.
Our Flag Was Still There. And there. And there.
The original flag that became known as the Star-Spangled Banner that inspired Key’s composition survives today and also has a unique backstory. A year prior to the bombardment, the commander of Fort McHenry, Major George Armistead, suspected that his fort was a likely British target and requested a “flag so large that the British would have no difficulty seeing it from a distance.” A 30-by-42-foot flag with 15 stars and 15 stripes representing each of the then-15 states was sewn by hand, with each star measuring two feet in diameter. Over the ensuing years, the flag that flew over Fort McHenry remained in the Armistead family, with pieces given to soldiers who defended the fort or to dignitaries, historical groups, family members, and other individuals up until 1880. Many of these cuttings from the Star Spangled Banner have been located over the years, including about a dozen owned by the National Museum of American History (NMAH), and at least a dozen others are known to exist in private collections or in other museums. In 2011, a retired market researcher in Columbus, OH purchased an authenticated shred from an auction in Texas for $10,755. There is still one missing star that has never been found. Apparently, our flag was still there. And there. And there.
In 1907, the Armistead family gifted the flag which was then just 30 by 34 feet (due to the gifting of so many cuttings) to the Smithsonian. A well-known flag preserver, Amelia Fowler, was hired in 1914 to restore the Star-Spangled Banner. Fowler had worked for the United States Naval Academy and patented a method of supporting fragile flags with a linen backing that required an intricate pattern of honeycomb stitches. With the help of ten needlewomen, Fowler spent eight weeks restoring the flag. For the next 50 years, apart from a brief move during World War II, the Star-Spangled Banner was displayed in Washington, D.C. but the case holding it was too small, so the lower half of the flag was folded up. It wasn’t until 1964 that the public was able to view the national treasure in its entirety, and the flag was displayed in the new National Museum of American History. Over the years, additional preservation measures have been taken to maintain the flag, an important piece of history.
All of us at Probity Advisors, Inc. wish you a very happy and safe Independence Day.