Strong week for Equities; bonds rebound as yields fall across the board; USD weak on tensions with China on trade. Strong quarter for Nvidia, highlighting the superior earnings power of the Magnificent 7 and of the Nasdaq. New GS targets for the S&P 500: 6,100 by the end of 2025, and 6,500 on a 12-month basis. ECB will cut again on Thursday, with EU Inflation presently below 2%. The US Labour report on Friday can give important clues on the economy and on the Fed, which is widely forecasted to stay on hold in June. 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 2nd – 6th June 2025

Economic data highlights of the week

Mon: CN, NZ – Holiday, CH GDP (1Q25), EU Manufacturing PMI (5/25), US ISM Manufacturing PMI (5/25), EU ECB President Lagarde Speaks, US Fed Chairman Powell Speaks

Tue: SK – Holiday, CH CPI (5/25), EU CPI (5/25), US JOLTs Job Openings (4/25)

Wed: JP Services PMI (5/25), EU Services PMI (5/25), UK Services PMI (5/25), US ADP Nonfarm Employment Change (5/25), US Services PMI (5/25), CA BoC Interest Rate Decision, US ISM Non-Manufacturing PMI (5/25)

Thu: EU PPI (4/25), EU ECB Interest Rate Decision (6/25), US Initial Jobless Claims, US Fed’s Balance Sheet

Fri: SW, SK, SG – Holiday, IN RBI Interest Rate Decision, EU ECB President Lagarde Speaks, EU GDP (1Q25), US Nonfarm Payrolls (5/25), US Unemployment Rate (5/25), US Average Hourly Earnings (5/25)

Performance Review

Source: Google

InflectionPoint reports:

* It was supposed to be a week full of data, and it did not disappoint. The US’ GDP was revised slightly upwards (but more on that later!), the Core PCE Price Index was exactly in line at 2.5%, which probably won’t be enough to sway the Fed, and Nvidia reported a very solid quarter, easing some of the ‘selling in China’ concerns. At the same time, late in the week, there were skirmishes between President Trump and the Chinese leadership, saying that commercial talks are going nowhere, and fretting about a possible attack on Taiwan (which would indeed shock markets). What was particularly noteworthy was the resilience of the Nasdaq and of technological stocks, after they proved to have a superior earnings potential (in particular the Maginificent 7 vs the US 493), and a superior ROE, double that of other markets, as highlighted by David Kostin in my LinkedIn repost. Speaking of David, he did reverse earlier cuts to his S&P 500 targets, and currently maintains a 12-month target of 6,500, noting a reduced probability of recession, and better economic growth expectations, partly due to developments in trade discussions. Goldman Sachs forecasts S&P 500 Earnings Per Share (EPS) to reach $262 in 2025 and $280 in 2026, representing a 7% growth rate for both years. These current projections represent a notable upward revision from earlier, more pessimistic assessments that were heavily influenced by initial fears of stagflation and the potential adverse impacts of heightened tariffs. Last week, earnings grew again, likely reaching their peak for 1Q25. However, most important is 2Q25, for which analysts have significantly reduced their estimates. Oracle, in mid-June, will be the first company to report its earnings for April and May, giving a possible early indication about what might happen in the next reporting season. Before we get there, there is the May employment report this week, followed by CPI and PPI. If there is no or 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 has reduced its odds of a US recession to 35% from 45%. The ECB will likely cut again this week on Thursday; Inflation seems benign at 1.9%, allowing the bank to be more flexible on its plans for the rest of the year. 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 98% 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 on a positive direction. The current P/E ratio of 21.3x 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 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, unfortunately, was not followed through by the Core PCE Price Index, the Fed’s favourite measure of inflation, which came in at 2.5%, matching estimates. This week, we will have another very important indicator, the US Nonfarm Payrolls, on Friday; anyway, the US Central Bank will continue to be data-dependent in the future. June is no longer promising and looks like another hold (4.7%), July is no longer a certainty (24.4%), while September seems the first reasonable chance of a cut (71.6%). 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 4.40% and were down last week, in line with European government bond yields. 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 264.49, 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 second quarter and for the full year, which means that analysts are expecting a slowdown later on.

Source: FactSet

* The US GDP closed 1Q25 with a reading of -0.2%, after the latest update, improving slightly from the original data, which saw a decline of -0.3%. The Atlanta Fed GDPNow model is in positive territory after a negative reading for the GDP in 1Q25, with a new, significantly increased forecast of 4.6%, from 2.3% last week. The Blue Chips consensus is flattening out on the 1% level. The New York Fed’s Nowcast model has an almost identical forecast of 2.42%, stable from 2.43% 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 13.3%, compared with a forecast of 7.2% 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 5.0% 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 (April 2026) 24.99%. 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. 

Source: Earnings Whispers

Market Considerations

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

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

Source: Carson Investment Research, FactSet, ISABELNET.com

Source: Carson Investment Research, FactSet, 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 13.5% (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.  

Four highlights this week. First, we have a chart from Goldman Sachs, which highlights the current forecasts of Chief US Strategist David Kostin, and shows a 2025E target of 6,100 and estimates to grow 7% this year to $262 per share. The second chart, from Goldman Sachs, shows a snapshot of earnings growth, showing that the Nasdaq has the best prospects for growth. The third chart, from Carson Investment Research, shows that after a strong 5%+ gain in May, usually more gains will follow 1 Month, 3 Months, 6 Months, and 12 Months later. The final chart, also from Carson Investment Research, focuses on the remarkable resilience (on average) the S&P 500 had this year, after a negative day, a rebound of 0.22% will promptly follow on the following day, reinforcing my call not to sell under pressure and stress.  

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 be tested again, after a negative move last week following skirmishes with China. Should it break, that will open a door to further devaluation with 1.20 as the next target.

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 15.3% in about 1 1/2 years, with a Sharpe Ratio of 0.9

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

Our Global Income and Growth Portfolio is up 15.8% in about 1 1/2 years, with a Sharpe Ratio of 0.6

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

My Italian Equities Portfolio is up 35.8% in the last year and has outperformed the FTSE MIB Index by 1300+ bp in this timeframe, with a Sharpe Ratio of 1.6

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.