President Trump threatens 50% tariffs on EU from Jun 1: equities, treasuries, and the USD fall, before announcing a pause until July 9. This week important updates from Nvidia (Wednesday), US GDP (Thursday), and the Fed’s favourite measure of inflation (Friday). First rate cut from the Fed might have to wait until September. The biggest tail risk is the US Economy falling into a recession (35% chance in 2025), resurging inflation, revenues/earnings not matching forecasts, followed by damages done by tariffs/government policies, adverse geopolitical outcomes, and valuations (very high multiples).

Major market events 26th – 30th May 2025

Economic data highlights of the week

Mon: UK, US – Holiday, CH Employment Level (1Q25), EU ECB President Lagarde Speaks

Tue: JP BoJ Core CPI, FR CPI (5/25), US Durable Goods Orders (4/25), US CB Consumer Confidence (5/25)

Wed: NZ RBNZ Interest Rate Decision, FR GDP (1Q25), FR PPI (4/25), DE Unemployment Rate (5/25), US FOMC Meeting Minutes

Thu: SW, NO, FI, CH – Holiday, US GDP (1Q25), US Initial Jobless Claims, UK BoE Governor Bailey Speaks, US Fed’s Balance Sheet

Fri: JP CPI (5/25), DE Retail Sales (4/25), SP CPI (5/25), DE CPI (5/25), US Core PCE Price Index (4/25), CA GDP (1Q25)

Sat: CN Manufacturing PMI (5/25), Chinese Composite PMI (5/25)

Performance Review

Source: Google

InflectionPoint reports:

* A quiet week, with equities trading sideways after the recent run, until President Trump dropped a bombshell on Friday, saying he wanted to levy a 50% tariff on the EU from June 1st in response to slow and not particularly advantageous negotiations for the US. European Equities went into a nosedive, closing the week largely in the red, while US Equities managed somehow to rebound from the initial shock. As often happened in the tariff saga, there were two pieces of news over the weekend, with a change of heart from the President, who delayed said tariffs until July 9, leaving more time for future negotiations. Hopefully, these can be conducted in good time to arrive at a mutual agreement, but the trade disruption risk is very much present, as Jamie Dimon (J.P. Morgan’s CEO) reminded us this week. So everything fell last week: equities, treasuries, and the dollar, with market pundits commenting that the ‘sell America’ trade has returned. While achieving an agreement on trade with China and the EU is of paramount importance, there are a few signs that the US Administration is being more flexible and is at least talking to its counterparts. Last week was an unusual week, which saw the great 1Q25 earnings’ growth trimmed, but it can be overturned as soon as Wednesday night, when the biggest contributor to the S&P 500’s earnings, Nvidia, will report. The impact of Moody’s downgrade was felt primarily by the treasuries, which saw yields soar once again, with 30-year bonds going above 5%. If there is no or a limited disruption to trade, I think that some of the previous targets for the S&P 500 (beyond 6,000) can be revisited; Goldman Sachs reduces their odds of a US recession to 35% from 45%. Keeping equities to buy (with the famous 3% weekly stop), due to a more positive scenario and a fewer/no disruptions on trade, keeping US bonds to hold, and European bonds to buy, and remaining positive on the CHF, which seems to be the only currency to hold its value no matter what (the SNB has one of the lowest interest rates among major countries at just 0.25%). 

* The reporting season is continuing, with 96% of S&P 500 companies having reported earnings, and so far is bringing optimism about the future. So are GDP numbers, with the Atlanta and New York Fed finally in agreement. The current P/E ratio of 21.1x is above the average P/E ratio of the last 5 years at 19.9x and the 10-year average at 18.4x. Even this latest figure, in my opinion, does not produce enough comfort to call for a bounce on valuation alone; a 16x multiple, or better still, a 14x multiple, would offer better entry points. The recent trade deal with the UK and the latest announcement that an agreement has been reached with China provide stability and optimism.  The S&P 500 so far has not touched the previous multiple high of 24x, and I think that record might stand the test of time for a few more years. Given the capitulation from early this year,  I would love to think that we have seen the lows in 2025, leaving room to grow, even with a multiple which begins with a 2, but continue to diversify and use prudent risk management. 

*  The Federal Reserve was on hold in May, as expected, and mentioned that the outlook is becoming more complicated; but inflation (both CPI and PPI) is softening and coming in below forecasts for the second month in a row. This week, on Friday, we will see the Fed’s favourite measure of inflation, the Core PCE Price Index; anyway, the US Central Bank will continue to be data-dependent in the future. June is no longer promising and looks like another hold (5.6%), July is no longer a certainty (25.1%), while September seems the first reasonable chance of a cut, but is looking increasingly 50/50 (57.8%). The forecast for December currently prices in 2 cuts, with rates at 3.75-4.00%, one less than forecasted by Goldman Sachs. Be wary of aggressive Fed cuts because they might signal an upcoming recession; non-recessionary interest rate eases are always welcomed by equities. We need (lower) yields and (higher) earnings to support some of the highest multiples since my heyday (the fated 1999-2000).

* Yields on US 10-year Treasuries have reached 4.51% and were slightly up last week, while European government bond yields were stable. While in 1999 yields were even higher, and the Fed was hiking, not easing, we definitely need yields to return below 4% to have a more constructive scenario, albeit gradually and not through a crash. The 2025 S&P 500 bottom-up earnings estimate is down to 264.78, still above the revised Goldman Sachs top-down estimate of 262. It is concerning to note that, while for 1Q25 earnings are strong, there is a continued reduction of those for the full year, which means that analysts are expecting a slowdown later on. A useful indication can come in June from Oracle’s quarter, which will be the first company to report on how things were for them in April and May. Meanwhile, Nvidia’s report and guidance will come on Wednesday, after close, and will be very important to determine the near term direction of the market.

Source: FactSet

* The US GDP closed 1Q25 with a reading of -0.3%, and we will get an update on Thursday. The Atlanta Fed GDPNow model is in positive territory after a negative reading for the GDP in 1Q25, with a new forecast of 2.4%, stable from last week. The Blue Chips consensus managed to move above the 1% level and is currently around 1.05%.  The New York Fed’s Nowcast model has an almost identical forecast of 2.43%, up from 2.35% last week. I believe it is prudent to make an average of those two forecasts to get to the real number; it is particularly good that these are now converging. Earnings growth for 1Q25 is now 12.9%, compared with a forecast of 7.1% as of March 31st. Revenue growth is slower, at 4.9% in 1Q25 vs 4.3% as of March 31st. For 2025, earnings growth is forecasted at 9.1% vs 11.3% as of March 31st, with revenues coming in at 4.9% vs 5.4% as of March 31st. 2Q25 seems to be very important in assessing if the slowdown expected for the end of the year will indeed materialise, as earnings are forecasted to grow by just 5.1% vs 9.3% as of March 31st, and revenues are forecasted to grow by 4% vs 4.7% as of March 31st. Finally, it’s worth noting that the chance of a recession in the next 12 months, as calculated from the yield curve, according to the Federal Reserve Bank of Cleveland, is presently (March 2026) 26.32%. The peak was 68.76% in April 2024, and it was the only time since 1960 in which a recession did not materialise given such a forecast. The current level is not too far from what economists are currently predicting: a 35% chance of a recession in 2025.

Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts; Federal Reserve Bank of Atlanta

Source: Federal Reserve Bank of New York, New York Fed Staff Nowcast

Source: Federal Reserve Board, Federal Reserve Bank of Cleveland, Haver Analytics

Earnings, What’s Next?

The reporting season for 1Q24 is now coming to an end. Here’s a list of companies reporting this week. Highlights include: Nvidia and Salesforce.com (Wednesday, After Close).

Source: Earnings Whispers

Market Considerations

Source: Bloomberg, ISABELNET.com

Source: FactSet, Goldman Sachs Global Investment Research, ISABELNET.com

Source: Datastream, STOXX, Worldscope, Goldman Sachs Global Investment Research, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 4.9% (5.4% on March 31st), and earnings growth estimates for 2025 are predicted to grow by 9.1% (11.3% on March 31st), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.2% (6.6% on March 31st) and earnings to grow by 13.4% (14.2% on March 31st). As mentioned, the Fed has cut its rates by 100bp in 2024 and will continue easing. Apart from the cut from quite high levels, which will probably help make these lofty multiples seem more bearable than offering a real stimulus to the economy, it will be important to see the extent to which the Central Banks are willing to cut rates and their timeframe.  

Three highlights this week. First, we have a chart from Bloomberg, which shows the current upside available for the market on a 12-month basis. Earnings, weak dollar, rate cuts later in the year, and waning recession fears should sustain the market into further upside, provided that there are no permanent glitches on trade (agreements, and no unilateral tariffs). The second chart, from Goldman Sachs, shows that the valuation of the Magnificent 7 might not be so stretched as it was – say in 2000 (a concept noted also by my mentor), and therefore their valuations could even have some multiple expansion – which I don’t rely on, leaving to earnings to create the upside from now on. Watch out for Google’s expanded offering in AI, as Gemini becomes more powerful and able to do some deep research – the latter can get you the results that the former might just not be able to. The third chart, again from Goldman Sachs, focuses on Europe and the valuation of its markets. While not the bargain it once might have been, the current valuations are in line with their historical standards, and definitely offerg more comfort than the extended valuations of the US Markets – plus they trade in EUR – important if you expect the USD to continue falling. 

For equities, be careful not to fall into ‘Buffett’s trap’. He famously said that there were moments when Berkshire Hathaway’s stock was down more than 50%, and nothing was wrong with the company at the same time. Timing and risk management are key. The late Angelo Abbondio, a legendary Italian investor, used to say that you can rely on fundamental analysis and on technical analysis, but the most difficult thing was to decide when to prioritise the first and when the second.

Due to the persistent stickiness of inflation, monetary policy is again taking centre stage. Obviously, we should not overlook geopolitical scenarios in Ukraine and the Middle East, although it is quieter now on both fronts. Any escalation would be negative for the markets. Let’s see if President Trump can possibly broker a peace agreement between Ukraine and Russia. 

I now recommend a long position in equities and a neutral position on US bonds. For EU Bonds, I advise going long, while I still suggest putting together a portfolio that includes the yield of Italian Bonds and the safety of German Bunds, without neglecting Corporate Bonds. 

There are three main headline risks to what is otherwise a constructive view for 2025: i) the US economy falling into a recession or revenue/earnings not matching forecasts; ii) any damage to the economy and trade done from Trumponomics, tariffs, and resurging inflation; iii) any negative geopolitical outcome (which could see an expansion of the current conflicts); and iv) valuations, which are nearing levels only seen once before (at least during my lifetime!). 

Japan managed to perform much better in the last weeks. The revaluation of the USD brought new shine to the local stock market, which has a more palatable valuation than its US counterpart. You still have to deal with a hawkish BOJ – although I would think that they would prefer to hold off hiking, given the current environment. For the time being, the cautious stance persists, although the bounce is noted, and it could be extended given the more positive news and in the event of further capital flows out of the US.

Finally, Tom thinks that the current USD weakness can continue if the current maneuvering on trade goes on, but he’s positive if there is a breakthrough, as it looks like the one with China. Watch this space. At the moment, I think the 1.15 EUR bottom will hold. 

Portfolios

Finally, I want to introduce three portfolios that Tom and I published on Wikifolio. Tom’s a multi-asset portfolio, whereas the one I manage (with substantial input from Tom) is a global income and growth with a heavy US tilt. The third one is on Italian Equities. Check them out!

https://www.wikifolio.com/en/int/w/wf00inf8ig

Tom’s Multi-Asset Portfolio is up 15.0% in about 1 1/2 years, with a Sharpe Ratio of 0.8

https://www.wikifolio.com/en/int/w/wf000ipggi

Our Global Income and Growth Portfolio is up 15.4% in about 1 1/2 years, with a Sharpe Ratio of 0.5

https://www.wikifolio.com/en/int/w/wf00ipiteq

My Italian Equities Portfolio is up 32.4% in the last year and has outperformed the FTSE MIB Index by 1120+ bp in this timeframe, with a Sharpe Ratio of 1.4

Consulting

Finally, I have officially become an Italian Independent Financial Consultant (Consulente Finanziario Autonomo), registered with the Italian OCF since 19 March 2024 (protocol 2425). If you are interested in my financial advice or simply for more information, please contact me at giorgio.vintani@inflectionpoint.blog

Consulting accounts usually start from EUR 100,000. Please note that you should be based in Italy to avail yourself of this service. If you are interested, please drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and see you next week!

InflectionPoint

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site, and there is no guarantee for completeness or accuracy. The content is food for thought, and it is not meant to be a solicitation to trade or invest. Readers should perform their own investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.