Investment Insights: Week Ending June 12

Originally published in "Investment Insights: Week Ending June 12"
By: Aaron Wall, CFA
Partner, Portfolio Manager

Happy Friday everyone! Kevin Warsh's first Fed meeting is next week, June 16-17. Ahead of the FOMC's closed-door discussion, we are reviewing key areas within the economy and bond markets that the committee will factor into its post-meeting commentary-jobs and tariffs.

Solid May Jobs Report

Last week concluded with an upbeat May jobs report, reflecting payroll growth of 172,000 during the month and unemployment holding steady at 4.3%.

Given the strong Q1 earnings season, it shouldn't come as a shock that hiring has started to rise.

Job openings have also been increasing to start the year. These are reported on a two-month lag (so the last data we have is from April), but that number showed the highest level of job openings since May of 2024.

Source: FRED

If these indicators remain resilient, the justification for proactive interest rate cuts to ease financial conditions and support the economy become slightly weaker. It will be interesting to watch Warsh's commentary next week as he unpacks how these changing conditions might impact the Fed's path forward.

Tariff Refunds Working Through The Market

While stellar earnings have no doubt impacted the ability for companies to hire, at the same time, fiscal stimulus has been working its way through the system. In his recent commentary, Dan Clifton at Strategas Research highlights a few of these measures.

First, tariff refunds totaling $100 billion have started. The effective tariff rate, based on his calculations, has fallen by 4% since October. These tax refunds will return $60 billion to consumers.

On the corporate tax side, 100% expensing of capital goods is causing companies to increase their investment in capital goods, R&D, and factories. This change has allowed for a higher ROI on capital investment, and firms seem to be taking advantage of the change.

All of this stimulus is, of course, being offset by higher fuel prices due to the war in Iran. It does raise the question, would the market's overall rally during the last few months be the same if not for these stimulus measures?

Regardless, the US is in a position where stimulus is factoring into higher growth expectations while geopolitical conflict is pumping the brakes. All eyes will be on the Fed next week to understand how the new leadership is expecting to navigate through these uncertain conditions.

Closing Time

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