Top-Level Takeaways
- Financial markets responded well to reduced trade fears in May, including a partial reduction/pause in Chinese tariffs.
- Credit sectors exposed to lower income/wealth households have experienced higher delinquencies in the past year, and an increase in unemployment would likely exacerbate the trend.
- President Trump reopened the door to GSE privatization on May 21, but it’s not an easy path to success.
Financial markets bounced back in May, particularly riskier assets. The S&P 500 returned 6.3%, the biggest monthly return since November 2023, and fixed income credit also performed well, particularly on a hedged basis amid the rise in benchmark yields. For corporate credit, both investment grade (+1.19%) and high yield (+2.16%) markets also posted the biggest monthly excess returns in 18 months according to ICE BofA indices. However, there is still ground to make up for the cumulative negative returns of the prior three months.
Tariff anxiety was lessened on multiple fronts. First, on May 12 the White House announced a significant reduction in Chinese tariffs for a 90-day period, which reinforced the idea of a “Trump put” for market participants, as discussed briefly in last month’s commentary. This idea was brought to the mainstream near the end of the month when a Financial Times columnist coined the phrase TACO — “Trump always chickens out” — to describe an emerging strategy on Wall Street to deal with policy noise from the White House. Nevertheless, trade fears and market volatility are likely to remain elevated for the foreseeable future as policy announcements remain less predictable.
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Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.