MARKET COMMENTARY

Below are the economic and market highlights for the week: 

1. The Federal Reserve left benchmark interest rates unchanged at 4.25%-4.50% at its FOMC meeting this week. That was the third consecutive time that Fed officials opted to hold rates in this range. The FOMC noted that labor market conditions remained solid although inflation remains somewhat elevated. The committee also made a nod to the growing threat of stagflation – a condition where economic growth slows but inflation continues to rise – due to the uncertainty tariffs could have on prices. In light of the ongoing risks, Fed Chair Jerome Powell reaffirmed the central bank’s wait and see stance so long as the broader economic data remains resilient.

2. Early indicators suggest the surge in U.S. imports to beat the tariffs has now subsided. According to container shipment tracker Vizion, U.S. imports plummeted 25.9% week-over-week (WOW) through April 28 as more businesses cancelled orders from around the world amid the tariff tussle. The drop was even more stark from China to the U.S., down 42.7% WOW. The decline is reminiscent of the disruptions seen in summer 2020 when the Covid pandemic hit supply chains. Similar to 2020, goods expected to arrive in the next six to eight weeks look unlikely to make the voyage absent more trade deals. Vehicles, plastics, electronics, steel goods, and textiles are likely to take the biggest hits.

3. Despite some of the economic uncertainty, the services industry expanded in April. The ISM Services Index increased to 51.6, up from 50.8 the prior month. Numbers above 50 indicate expansion while those below signal contraction. New orders rose to 52.3 in April from 50.4 in the prior month. Meanwhile, inflation remained a concern as prices jumped to 65.1 from 60.9 in March. Tariff uncertainty remains the dominant theme and could lead consumers to pull back on spending during the busy summer travel season.

UK Trade Deal Sparks Hope for More

Coming off last week’s winning streak, markets struggled to maintain momentum during this week’s early sessions as investors waited to hear the Fed’s take on current conditions. As expected, the Fed restated their intention to slow play their hand for additional rate cuts while the tariffs’ impact on the economy remains uncertain. The slow news cycle and the lack of accommodation from the Fed deprived the markets of buoyancy until Thursday when the U.S. and UK announced an agreement in principle for revised trade terms. The announcement marks the first major trade agreement since “Liberation Day” and while the announcement was light on details, it provided credibility to Trump’s assertions that major trade deals are indeed in the works and will soon be announced. What was clear from the announcement is that the 10% baseline tariff on UK products will remain in place (the reciprocal rate the UK charges to all countries), and U.S. producers will be provided “billions of dollars of increased market access.” While the announcement was encouraging given that the UK is such an important political, military, and cultural ally, the terms of the agreement with the UK are unlikely to serve as a model for other deals. When asked whether the terms were indicative of those being sought in other negotiations, President Trump said, “That’s a low number. Some will be much higher because they have massive trade surpluses.” The agreement is more symbolic than it is truly economically significant. In 2024, the U.S. actually recorded a trade surplus (more exports than imports) of $11.9 billion, which was a 17.4% increase from 2023. Hardly the direction or magnitude of trade differential that would make reaching a deal with the UK nearly as difficult as those that the administration has identified as “Bad Actors”.  This reality began to sink in on Friday as investors turned their attention towards China trade talks, which are expected to occur over the weekend. As a sign of goodwill, Trump announced on Friday his openness to dropping China’s tariff rate to 80% from 145% ahead of those negotiations. Expectations are low for this initial round of talks, but the hope is it could help de-escalate tensions between the world’s two largest trading partners and lay the groundwork for more substantive talks in the coming weeks. With trade continuing to dominate investors’ attention, markets ignored the rebound in the services sector and the Fed’s FOMC meeting. The Fed decision and Powell’s comments on Wednesday were entirely routine, but by Powell flagging inflation and employment risks to the Fed’s economic outlook, traders have now priced just a 17% chance of a rate cut in June. With no help from the Fed expected any time soon, trade will continue to be the singular focus for investors as the July 9 tariff pause expiration looms just around the corner. 

The Week Ahead

A big week on the economic front with reports on retail sales, inflation, and the monthly U.S. federal budget.

On Wit and Wisdom

Last week was the Berkshire-Hathaway Annual Meeting which is sometimes called Woodstock for capitalists.  Based in Omaha, Nebraska, Berkshire-Hathaway is a $1 trillion conglomerate with close to 200 businesses including insurance, utilities, a railroad, and more. For the past six decades, the company has been led by 94-year-old billionaire Warren Buffett who surprised attendees at the close of the meeting on Saturday by announcing his upcoming retirement. Buffett’s Q&A session at the end of the annual event is one of the most highly anticipated parts of the investor gathering: Buffett spends time answering questions from investors and journalists on a range of topics, from Berkshire’s portfolio to broader financial principles.  His responses are candid, often humorous, and packed with life lessons beyond investing.

Throughout his remarkable career, Buffet has generously shared his wisdom on life, success, leadership, philanthropy, and the challenges of raising kids in affluence. His advice is both strikingly simple and profound. The evolution of the Berkshire Hathaway annual meeting reflects Buffett’s growing influence as “the oracle of Omaha.”  In 1965, just 12 people attended the Berkshire Hathaway annual meeting. Attendance grew to 1,000 in 1986, 13,000 in 2000, 21,000 in 2005, and a whopping 42,000 in 2015 – the 50^th anniversary of Buffet’s tenure. 

One of Buffet’s famous statements is his intention to leave his children “enough so they can do anything but not enough that they can do nothing.” Buffet’s children are now in their 60s, and the patriarch has shared that over the years he has “loosened up a little bit as I go along.”  In a November 2024 press release, he shared that he changes his will every couple of years. In his experience, he’s seen that legacy wealth – wealth handed down through generations – has the potential to cause divisiveness when done incorrectly. He encourages parents to discuss their estate plans with children and avoid surprises.  We couldn’t agree more, and our advisors often counsel our clients about the importance of ensuring loved ones and heirs understand the intent for inherited wealth and the responsibilities that will be encountered for maintaining it for future generations.

At Probity Advisors, Inc., we share with clients a fundamental principle in estate planning and wealth management: “It is just as important to prepare the wealth for the family as it is to prepare the family for the wealth.” Successful wealth transfer isn’t just about accumulating wealth—it’s also about ensuring that heirs are equipped with the knowledge, values, and responsibility to manage it wisely.

Warren Buffett underscores an important aspect of estate planning that our advisors have welcomed and encouraged over the past several decades that we’ve been working with clients — one that moves away from the secrecy of past generations and toward a more open and transparent approach. Historically, prior generations often kept financial matters private, hesitating to discuss inheritance with their children. However, this mindset has evolved, aligning with Buffett’s belief that families benefit from clear and honest conversations about wealth transfer, passing down not only assets but also financial literacy while taking the time to instill values that help ensure the next generation is prepared to sustain and grow inherited wealth with a sense of purpose.

At our firm, we have long advocated for open communication in estate planning, recognizing that it helps prevent conflicts and misunderstandings. While openness is key, it’s equally important to approach these discussions with care.

Below are a few of Warren Buffett’s many nuggets of wisdom over the years, offering insights on leadership, wealth, happiness, and life.

1. On Leadership: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
2. On Happiness: “The secret to happiness is having low expectations.”
3. On Success: “The difference between successful people and really successful people is that really successful people say no to almost everything.”
4. On Integrity: “Honesty is a very expensive gift. Don’t expect it from cheap people.”
5. On Investing: “Be fearful when others are greedy, and greedy when others are fearful.”
6. On Inheritance: “Whether you are of modest or staggering wealth, let your kids read your will before you sign it.”
7. On Learning: “The best investment you can make is in yourself.”
8. On Legacy: “Someone’s sitting in the shade today because someone planted a tree a long time ago.”