What We're Seeing: Fed Pivot Hopes – 2 June 2025

The Week in Brief

Mid-year 2025 brought renewed focus on Fed policy. May jobs data underwhelmed, coming in below expectations and sparking fresh hopes that rate cuts are finally on the horizon. Stocks rallied broadly in response.

The S&P 500 and Nasdaq reached new record highs as yield curves steepened with long-dated yields falling. The dollar weakened, a typical response when rate differentials narrow. Risk appetite was clearly on display.

The Jobs Picture

The May employment report showed hiring slowing from the torrid pace of recent years. Unemployment ticked up slightly, and wage growth moderated. For markets, this was a Goldilocks print: enough softening to justify Fed action, but not so weak as to signal recession.

The labour market has been remarkably resilient throughout this cycle. A gradual cooling is exactly what the Fed wants to see. It allows them to ease policy without the urgency of responding to a crisis.

Commodity Moves

Commodities gained on the easier Fed outlook. Oil rose about 5%, benefiting from both the weaker dollar and continued supply discipline. Precious metals firmed as real yields fell.

The commodity rally has implications for inflation. While demand-driven price increases are generally tolerable, supply-driven spikes could complicate the picture. We are watching OPEC+ decisions and geopolitical developments closely.

Our Read

This feels like a genuine shift in the policy narrative. For the first time in this cycle, the data is clearly pointing toward easing. The Fed has been patient, perhaps overly so in some views, but the conditions for cuts are now falling into place.

We think equities have further upside if the rate-cut cycle unfolds as expected. Lower rates reduce discount rates and make equity risk premiums more attractive. Sectors that have suffered under higher rates, including real estate and utilities, could see meaningful relief.

For positioning, we are adding to rate-sensitive holdings while maintaining core exposure to quality growth. The broadening of the rally is encouraging, and we are participating across styles.

What Could Change Our View

The risk is that inflation proves stickier than the jobs data suggests. If price pressures reaccelerate, the Fed will delay cuts, and markets will need to reprice. We are also watching consumer spending closely: if the softening in the labour market translates into weaker demand, earnings estimates will come under pressure.

This is informational commentary, not investment advice.