JUNE 2025 MARKET UPDATE
06/06/2025
Thrivent Asset Management contributors to this report: John Groton, Jr., CFA, director of administration and materials & energy research; Matthew Finn, CFA, head of equity mutual funds; and Charles Hofstrom, CFA, investment product manager
Economic data continues to show signs of a slowing economy, but we anticipate avoiding a recession.
Inflation and consumer sentiment measurements were steady from April to May.
The economy: While it remained difficult to predict the ultimate level and impact of tariffs on the U.S. economy, pauses or outright cuts to planned tariffs prompted markets to take a more optimistic view in May. However, the backward-looking economic data was more mixed, with consumer spending, imported goods and factory production down, while inflation showed encouraging signs of stabilizing. May’s employment data was better than expected, with 139,000 new jobs added over the month.
Stocks: The S&P 500® Index rallied 6.15% in May (its best May since 1990), recovering much of March’s losses and bringing the index back to a positive year-to-date return of 0.51%. The NASDAQ Composite Index® (NASDAQ) fared better over the month (rising 9.56%) but remained negative year to date at -1.02%. Robust first-quarter earnings reports helped, with 77% of companies reporting better-than-expected earnings and 63% reporting better-than-expected revenues.
Bonds: Treasury yields remained volatile during the month as uncertainty persisted around the economic outlook and concerns grew about the potential size of the U.S. government budget deficit. While the spending bill currently in Congress has yet to be finalized, the Congressional Budget Office has estimated that government debt as a percentage of gross domestic product (GDP) could eventually exceed the record set in 1945, prompting concern about future demand for Treasuries. Mid-month, credit-rating agency Moody’s Corporation downgraded the U.S. government’s rating to Aa1, bringing it in line with the other two major rating agencies, S&P Global Ratings and Fitch Ratings. Immediate market response was relatively muted. However, concerns over an unstainable trajectory of higher U.S. government debt levels pressured rates higher through the end of the month, with the 30-year Treasury bond yield rising above 5%. The benchmark 10-year Treasury ended the month yielding 4.39%, 0.23% higher than its 4.16% yield at the end of April. The Bloomberg U.S. Aggregate Bond Index fell 0.72% in May, lowering its year-to-date gain to 2.45%.
The economy: May’s economic data reinforced our view that the economy is slowing, but we continue to caution investors against over extrapolating long-term trends from short-term data, particularly given the distortions that recent policy uncertainty may be creating. It will take time to find an acceptable level of tariffs for the country’s trading partners, and the final contents of the current spending bill are still to be determined. In the meantime, falling business and consumer confidence remains a concern, though relatively stable employment and stable inflation data should provide support. We are watching the labor market closely, as the job market is key to the economy and a meaningful increase in unemployment would be concerning. With a longer-term view, we remain confident that the U.S. economy—bolstered by its dynamism and diversity—will adapt and thrive.
Stocks: We maintain a modest overweight to equities over fixed income given our structurally positive long-term outlook for the economy and we have a bias toward prioritizing economic fundamentals and corporate earnings as the primary determinate of investment returns over the long term. But we caution that shorter-term volatility is likely to persist, whether due to ongoing policy uncertainty or the volatility in economic data which comes with turning points in the economy. Staying invested in the market can be challenging, but reducing exposure in periods of high volatility can risk missing substantial upside in a recovery, such as the strong rally from the equity market bottom in early April.
Bonds: The outlook for Treasury yields is complicated by the high levels of uncertainty around expected economic growth and the path of both inflation and the U.S. fiscal deficit. As such, we expect Treasury yields to remain volatile until there is more clarity on any of the key drivers of interest rates, including the fiscal deficit, inflation, international trade and economic growth.
First-quarter GDP was revised up in May, from -0.3% to -0.2%, while the U.S. Federal Reserve’s (Fed) industrial production measure was largely unchanged in April. However, factory production—about 75% of industrial production—declined for the first time in six months, likely due to higher costs for imported materials. And in early June, the Institute for Supply Management Purchasing Managers Index (PMI), fell modestly in April, while consensus expectations were for the index to rise.
U.S. retail sales rose 0.1% in April, significantly less than the revised gain of 1.7% in March, though not far from consensus expectations of 0.2%. Consumer confidence data released in May was more encouraging, with The Conference Board Consumer Confidence Index (CCI) showing its largest gain in four years, exceeding most estimates. Additionally, the University of Michigan’s Consumer Sentiment Index was broadly unchanged from April, halting a four-month period of steady declines.
May’s employment report showed 139,000 new jobs were created during the month, above consensus expectations closer to 125,000 new jobs. The number of jobs added in the prior two months, however, was revised down by 95,000. Health care once again led the gains, with 62,000 new workers hired over the month. The national unemployment rate was again unchanged at 4.2%.
Jobs with the federal government fell by 22,000 over the period, while the Bureau of Labor Statistics made clear that employees on leave or receiving severance are considered employed for the employment report, and thus government employment could see accelerating declines as the full effect of the Department of Government Efficiency’s actions take effect.
April’s month-on-month Consumer Price Index (CPI) rose 0.2%, less than the consensus forecast given expectations for tariff-related price increases. Core CPI (which excludes the more volatile food and energy sectors) also rose 0.2% from March, below expectations closer to 0.3%. Relative to April of last year, Core CPI rose 2.8%, in line with expectations.
April’s Core Personal Consumption Expenditures (PCE) Price Index data, which is the Fed’s preferred inflation measure, was more encouraging. Month-on-month, Core PCE rose 0.1%, a substantially lower pace than levels at the start of the year. The year-on-year rise of 2.5% was a notable decline from March’s 2.7% rise and the lowest year-on-year rise in the last four years.
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U.S. stocks staged strong performance in May, with the benchmark S&P 500 Index of large-cap stocks rising 6.15%, the benchmark Russell 2000 Index of small-cap stocks rising 5.20% and the technology-heavy NASDAQ rising 9.56%. While May’s performance boosted the S&P 500 Index into modest positive territory year to date (up 0.51%), the Russell 2000 Index and NASDAQ remain negative on the year, down 7.35% and 1.02%, respectively.
Stronger returns were supported by a more optimistic outlook on the degree and impact of tariffs and generally robust first-quarter earnings. For the first quarter, the blended year-over-year earnings growth rate was 12.4%, with 77% of companies reporting better-than-expected earnings and 63% reporting better-than-expected revenues. Technology and technology-related stocks led the rally during the month, with most sectors generating strong returns. The health care sector was the exception, falling 5.55%, while energy and real estate (both up 0.99%) generated modest returns.
The table below shows the past month, quarter-to-date and year-to-date performance results of the 11 sectors:
The MSCI ACWI ex-USA Index, which tracks stocks across developed and emerging-market economies across the world (excluding the U.S.) rose 4.11% in May. While the index underperformed major U.S. equity benchmarks for the month, its year-to-date return of 12.44% remains well above the S&P 500 Index’s year-to-date return of 0.51%. European markets continue to expect both lower interest rates and a stronger economy this year, while data showed Germany’s economy grew 0.4% in the first quarter, up from initial projections near 0.2% and above the U.S. where GDP was revised up to -0.2% from -0.3%.
Treasury yields remained volatile during the month as uncertainty persisted about the economic outlook and concerns grew about the potential size of the U.S. government budget deficit. Moody’s Corporation downgraded the U.S. government’s rating from Aaa to Aa1 mid-month. The yield on the 30-year Treasury bond rose above 5%, and the benchmark 10-year Treasury ended the month yielding 4.39%, 0.23% higher than its 4.16% yield at the end of April.
Investment grade corporate bonds ended the month relatively unchanged, with higher Treasury yields largely offset by tighter credit spreads (the yield paid over comparable U.S. Treasuries). The Bloomberg U.S. Corporate Bond Index was essentially flat, down 0.01% in May and bringing its year-to-date return to 2.45%. High-yield (sub-investment grade) corporate bonds were also effectively unchanged over the month, down 0.02%, lowering their year-to-date return to 0.98%. The Bloomberg U.S. Aggregate Bond Index fell 0.72% in May, bringing its year-to-date gain to 2.45%.
The Nominal Trade-Weighted U.S. Dollar Index fell 0.99% in May, extending its year-to-date decline to -5.99% as concerns about the U.S. fiscal deficit were added to existing concerns about trade policy and the economic outlook. Additionally, a provision in the government’s current spending bill that could increase taxes on foreign passive investment raised concern about long -term demand for U.S. dollars.
The S&P GSCI Index (a broad-based and production-weighted index representing the global commodity market) rose 1.26% in May, reducing its year-to-date loss to -4.54%. Oil prices rebounded from their early May lows, with a barrel of West Texas Intermediate (a grade of crude oil used as a benchmark in oil pricing) rising 4.43% over the month. Gold prices were down modestly (-0.8%) as softer inflation data and rebounding equity markets reduced demand for more defensive assets.
Before making a change in your investment portfolio, you may wish to consult with a financial professional to determine how that may align with your long-term goals and objectives.
Media contact: Callie Briese, 612-844-7340; callie.briese@thrivent.com
All information and representations herein are as of 06/06/2025, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
This article refers to specific securities which Thrivent Mutual Funds may own. A complete listing of the holdings for each of the Thrivent Mutual Funds is available on thriventfunds.com.
The S&P 500® Index is a market-cap weighted index that represents the average performance of a group of 500 large-capitalization stocks.
The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks.
The Nasdaq Composite Index is a stock market index that includes almost all stocks listed on the Nasdaq stock exchange. The Nasdaq – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.
The MSCI ACWI ex-USA Index is an unmanaged index considered representative of large- and mid-cap stocks across developed and emerging markets, excluding the U.S.
The Bloomberg U.S. Aggregate Bond Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
The Bloomberg U.S. Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes U.S. dollar-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers.
The Federal Funds effective rate is the interest rate at which depository institutions (mainly banks) lend reserve balances to other depository institutions overnight on an uncollateralized basis. In simpler terms, it's the rate banks charge each other for short-term loans to meet their reserve requirements.
The Consumer Confidence Index (CCI) is a survey administered by the Conference Board. The CCI measures what consumers are feeling about their expected financial situation, whether that's optimistic or pessimistic.
The University of Michigan Consumer Sentiment Index is a consumer confidence index published monthly by the University of Michigan.
The Consumer Price Index measures the monthly change in prices paid by U.S. consumers for a basket of goods and services.
The Core Consumer Price Index (CPI) measures changes in the prices of goods and services, with the exclusion of food and energy.
The Personal Consumption Expenditures (PCE) Price Index, also known as consumer spending, is a measure of the spending on goods and services by people of the U.S.
The Core Personal Consumption Expenditures (PCE) Price Index, also known as consumer spending, is a measure of the spending on goods and services, excluding food and energy prices, by people of the U.S.
The Nominal Trade-weighted U.S. Dollar Index measures the value of the U.S. dollar based on its competitiveness versus trading partners.
The Institute for Supply Management Purchasing Managers Index (PMI) measures the month-over-month change in economic activity within the manufacturing sector.
Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.
Past performance is not necessarily indicative of future results.
