This week on Inside the Economy, we address stock market performance, corporate America, current trade and tariff developments, and government debt. The S&P 500 posted its best May performance in 35 years, challenging the old saying, “Sell in May and go away.” Which companies led the index during this rally? How have capital expenditures evolved among large technology firms in recent years? We also explore how Asian economies have significantly increased their net purchases of U.S. bonds and stocks since 1997—a trend largely driven by their export relationships with the U.S. and subsequent investments in U.S. Treasuries. Has this pattern changed since the onset of trade tensions? Finally, as tariffs increase the cost of imported goods and services, could businesses begin passing those costs on to consumers? Tune in to learn more!
Key Takeaways:
- Unemployment at 4.2%
- 30-year bond yield at 4.95%
- U.S. Debt-to-GFP ratio is 123% as of April 2025
Full Transcript:
Welcome to another edition of Inside the Economy!
I’m Bryon Geman. Thanks for joining me!
Today we’re going to discuss stock market performance, corporate America, as well as trade tariffs and talk about debt. Jumping into the economic report, the biggest update that we have is the unemployment figures released last Friday. As we can see, 4.2% is the unemployment number, very similar to where we were at points throughout 2025 and certainly very similar to where we were a year ago in June of 2024.
Now, these numbers released last Friday showed an increase of about 140,000 jobs, and that’s very similar to the 12-month rolling average, which is closer to 150. So we continue to see really strong numbers. when it comes to hiring in the US and continued good news there.
The other two big updates that we have are the ISM figures. And here we have survey and service data. As we jump into the survey data, which is really a sneak peek into the manufacturing sector within the US, we did see a third consecutive contraction on these ISM figures. Anything below a 50% level is considered contraction. So is that the beginning of a trend or where will we continue to see the manufacturing figures move into the remaining seven months of the year?
On the services side, we did see a contraction to technically below that 50% level. So that is the first time since June of 2024. It’s also only the fourth time that we’ve seen these numbers in contraction going back to the beginning of COVID almost 60% full months on that particular data. Other highlights, what we continue to see is on the crude figures still hovering in the low $60 per barrel of oil range, substantially lower in the mid 70s compared to where we were this time last year.
So crude and certainly the energy markets continue to be in focus. Not a lot of movement when it comes to the bond or the fixed income world, as we can see the three-month treasury bills all the way through the 30-year mortgage. Not a lot of movement since our last releasing of the video, and that has all remained very stable from a fixed income perspective.
Start with talking about the markets. What we continue to see is a very large rebound after the April route. We are trading pretty close to the all-time highs, especially when we look at the NASDAQ, which is in that lighter shade of blue and leading the charge year to date.
So are the markets perhaps a little bit overvalued compared to where they were just a couple of weeks back? Well, we continue to think that might be the case, but just good to see resilience in the markets and we’re certainly happy to see a nice rebound again after the April route. Let’s jump into some of the data.
So here we have the S&P 500, which in the month of May, actually had its best May since 1990. So quite a bit of history here when it comes to how strong the performance was for the S&P 500. Now just on a month to month comparison, May of 2025 was the strongest month compared to May of 2023. So nice to see that jump going back just a couple of years. But again, historically a pretty strong spring for the S&P 500.
Now what we would ultimately highlight on this page is the classic time in the market versus timing the market. We know we had a really rough April and this holds true to staying in the market having a disciplined approach you never know when you’re going to see a record type of a month.
So what contributed to the strong six plus percent return for the S&P 500? Well no big surprise here it was the Magnificent Seven or the Mag Seven as they have been dubbed. Those seven companies, despite Apple’s small negative figure for the month of May, returned almost three and a half percent to the overall six percent figure for the S&P 500. So what are the other 493 names?
Well, we can see that in all the other constituents on the far right side. So again, a concentrated story around the biggest growth in technology stocks, and they really held a lot of their own weight in the month of May and contributed to the bulk of the returns for the S&P 500 index.
Sticking with the large cap companies, here we have four of the largest in terms of their capital expenditures, Microsoft, Meta, Amazon and Alphabet, all leading the charge in terms of taking their dollars and putting it back into technologies and different parts of their business. The figures that we see for those four companies for this period, which is 2022 through expected expenditures in 2026 is over a trillion dollars. Certainly dwarfs what we saw back in 2017 through 2021.
The overall point here is that the largest growth and tech companies out there continue to go into research and development, continue to have expenditures to build on their businesses. Certainly a theme in corporate America highlighted by these four juggernauts. Sticking with the corporate America theme, let’s dig a little bit into corporate profits. And here we see continued strength.
Right now we are at about 5.5% on a pre-tax number for the first quarter within 2025. Now that 5.5% number is technically the slowest growth of pace on a quarterly basis going back to the third quarter of 2023. However, if we look back to when this chart starts in 2000, we see relatively strong figures coming out of corporate America continues to be a very healthy backdrop for corporations.
And that’s what we see when digging in throughout the course of a quarterly earnings season. Asian economies have continued to pile into American assets for a handful of decades. Going back to 1997, we can…. you can see Japan, as well as mainland China in black and red, have been responsible for the bulk of these US stock and bond purchases.
Now, we do have two other components on this chart, the Trump presidency highlighted in the thicker gray bar right around 2020, and then we can see just a sliver of gray indicating Trump’s first handful of months of his current term.
Now, the interesting part here is Asia’s export powerhouses have really had a simple strategy over the last handful of decades. Sell US goods and then ultimately turn around and reinvest into US stock and bond markets. Is that trend going to be interrupted with tariff policies? We’ll continue to see, but ultimately approaching $5 trillion of investment into the US from Asian economies over the last handful of decades. A very large number and something worth noting.
Let’s switch gears and talk a little bit about the fixed income world where we see that the 30 year bond is by far the outlier. We’re showing the two, five and ten year bonds that are all down on a yield perspective year to date.
Now, when bond yields are down, that means the price of the bond has appreciated. So we’ve actually seen positive figures for the 2, 5 and 10 year bonds throughout 2025. Again, the outlier and the exception to this is the 30 year bond where the yields are actually up, indicating that the price of those bonds has drawn down a bit.
Now, we haven’t seen this type of divergence going back through 2001. That was the last time for the full calendar year that the twos, fives and tens were all down while the 30 year was up from a yield perspective. Still seven months left on the clock in 2025, so we’ll see how this plays out. But just fascinating to see longer term bonds and the bond market perhaps pushing back a little bit on some of the Washington conversation and what we’re seeing in terms of the big beautiful bill.
Switching gears, let’s talk a little bit about trade. And this particular chart is going to show us the balance of trade in terms of goods and services. and it has been a wild ride over the last couple of months. We can see a pretty sharp move down where the deficit hit almost $140 billion, followed by a really sharp reversal in the second quarter and where we currently sit with the trade balance somewhere around the $62 billion level.
So we’ve normalized back to where we were, let’s call it post 2022, but a very sharp move ultimately in the trade deficit. And just fascinating to see how those numbers have moved so much with the tariff announcements in those conversations over the last handful of months.
Sticking with the trade and tariffs theme, always interesting to get a little bit of insight into what are businesses expected to do. We have a survey in early May with companies in New York and Northern New Jersey. And what this slide is showing us is off to the right side, 31% of manufacturing firms and about 45% of service-oriented firms plan on passing 100% of tariff costs onto their end customer.
On the other side of the chart, we see 25 and 23%, respectively, plan on passing 0% of the tariff costs onto their end customer. Either way, it does look like companies are anticipating passing on some of those costs. Will that end up in the inflationary data? Will we finally get to see some evidence of that? Well, the jury is still out. What this ultimately is showing us, though, is that give or take about three-fourths of companies anticipate passing on some percentage of tariff-related costs to the end customer. So it’ll be fascinating to see how this ultimately plays out for the remainder of the country.
Again, just the Northeast in this particular survey. data and obviously an ongoing conversation when it comes to tariffs and the negotiations around the world. Switching gears, let’s talk a little bit about debt, which is certainly plentiful around the world. This slide in particular is going to highlight debt to GDP ratios.
So in the center, we have Sudan, which has the highest debt to GDP ratio. And as we move out of those circles, we work our way to lower figures. The US, just outside that center ring, hovering right around 120% of debt to GDP. We’re in the same camp as the Japan’s and other parts of Europe in terms of Italy and Greece. China, for example, just above and to the left of the US, is currently in the 90% range when it comes to debt to GDP ratio.
And then finally, who’s on the lowest end? No big surprise here, Germany, down in the bottom right corner, hovering right around the mid 60% level when it comes to debt to GDP. The reason we wanted to highlight this page is it’s not just your overall debt, but we certainly need to take into account the growth of an economy and how that ultimately can factor into paying off some of the debt or chipping away at it at the very least. So interesting slide and certainly good to see. The US is not the frontrunner. We’re not the lowest. We’re probably sandwiched somewhere in the middle of these overall figures.
Last but not least, I just wanted to finish with a little bit of highlighting of the big data report from last week, which is the unemployment figures. Again, hovering right around that 4.2% level. Historic lows, as we can see on this chart going back to 1994. The unemployment figures in the US are really hovering within the Fed’s longer run return estimate, which is that red bar running down towards the bottom and just continue to show a really healthy employment backdrop for the US.
Overall, we’ve continued to see a very strong rebound in the market highlighted by the best May in the S&P since 1990 with a specific focus towards those technology companies. Profits continue to show that there’s a very healthy backdrop for corporate America.
And finally, the trade deficit had a really strong rebound after tariff announcements and the subsequent 90-day pauses went through. As always, please send questions to info@shjwealthadvisors.com
Thanks for joining me!
We’ll see you next time!
