by Bryan Perry
June 10, 2025
There has been some commentary suggesting that the stock market has recovered “too quickly,” and that a blow-off top is imminent. Seeing some of the leading tech stocks powering the current rally, as the AI trade has been fully revitalized, this makes for a plausible case that the market is due for a rest. But a major pullback is doubtful, given the recent bullish consumer sentiment survey and rising optimism.
As of June 5th, the Atlanta Fed’ GDPNow estimate for GDP growth in the second quarter stands at +3.8%:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This revision from 4.6% (above) shows how whimpy the Atlanta Fed’s economic measuring stick is. Although the 3.8% rise is down almost a full point, it still reflects rising personal consumption and improved private domestic investment. However, some economists remain skeptical, warning that new tariffs and trade wars could reverse this optimism. If so, there is the probability of a “risk-off” sentiment developing if trade negotiations remain bogged down as the 90-day tariffs extensions approach expiration.
Major factors contributing to the market retesting its February highs are expectations of trade deals being consummated – or the deadlines getting further extended – stronger-than-expected revenue and earnings growth, a healthy labor market, and inflation trending lower, now at a 2.3% annual rate. Gas prices are under $3.00 per-gallon in many parts of the country, and the summer travel season is now in full swing.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
With this bullish backdrop having propelled the S&P 500 back to the 6,000 level, it should be noted that early signs of slowing economic activity are showing up as we approach the mid-point of 2025. For instance, Q1 productivity decreased by 1.5% (consensus -0.8%) versus the preliminary report of a 0.8% decrease. This decline in Q1 productivity was the first such decline since the second quarter of 2022.
Also, unit labor costs were revised up to 6.6% (vs. a consensus of 5.7%) from the preliminary reading of 5.7%. This increase in unit labor costs to 6.6%, especially alongside a 1.5% decline in productivity, suggests rising labor expenses without a corresponding increase in output. This could be driven by factors such as wage growth, inflationary pressures, or inefficiencies in production.
The combination of declining productivity and a big jump in unit labor costs brings stagflation into the discussion. That will complicate the Fed’s assessment of the overall economic picture – specifically, what to do with its policy rate – but its policy statement will be dominated by the employment picture.
Initial jobless claims for the week ending May 31 increased by 8,000 to 247,000. Continuing jobless claims for the four-week moving average of 1,895,250 are at the highest level since November 27, 2021.
Speaking further to the job market, the latest ADP National Employment Report for May 2025 shows that private sector job growth has slowed significantly, with only 37,000 jobs added, the lowest rate since March 2023. This is far below economists’ expectations of 110,000 jobs. And yet the Employment Situation report for May beat expectations, pointing to the addition of 139,000 non-farm payrolls.
It should be noted that April non-farm payrolls were revised to 147,000 from 177,000 and March non-farm payrolls were revised to 120,000 from 185,000. These are sharp downward revisions. A weaker-than-expected labor market could be influencing these revisions. These adjustments suggest that job creation was over 25% lower than initially reported for two months, which may signal broad economic concerns.
It would be no surprise if last Friday’s headline number will also be revised lower in later months.
With the U.S. being a consumer-driven economy, this latest set of employment data is pivotal to market sentiment. From a big-picture standpoint, the data implies that the economy remains on good footing, despite the volatility incurred by bond market gyrations and tariff uncertainty. On balance, a 4.2% unemployment rate, coupled with higher-than-expected average hourly income growth, paves the way for consumer spending to remain on a steady growth trend, suggesting the risk of recession remains low.
The predominant risks to this positive outlook appear to be deficits and the dollar. The heightened state of awareness by investors is that spending and rising deficits on Capitol Hill are not a priority, despite the election rhetoric. This has both the dollar and the long-dated Treasury maturities trading on the defensive.
This bearish chart of the U.S. Dollar Index (DXY) should be displayed in Congress every day as they determine the outcome of President Trump’s Big Beautiful Bill. The Congressional Budget Office (CBO) estimates it will increase the federal deficit by $2.4-trillion over the next decade. The bill includes $3.7-trillion in tax cuts but only $1.3-trillion in spending reductions, leading to a significant budget shortfall.
The dollar is, and will be, the world’s reserve currency because the U.S. economy accounts for 25% of global GDP. But it is vitally important that its status and value are protected – and that comes with fiscal discipline during times of economic growth, so that when an emergency – such as another COVID-19-type event – comes around, the balance sheet can be expanded to rescue the economy.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Both Jamie Dimon, CEO of JPMorgan Chase, and Ray Dalio, founder and chief officer of Bridgewater Capital, the largest hedge fund in the world, warned publicly this past week that if Congress doesn’t get serious with fiscal policy regarding government spending, taxation, and borrowing through thoughtful and tough-love legislation, there will be a fissure in the bond market that will have wide ranging effects.
For now, the market is tolerating Congress’s disregard for proper fiscal stewardship, but there needs to be movement in the right direction to ward off the kind of risk these big banking honchos see coming.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
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The Market is Shrugging Off Risks, as Fears of Recession Recede
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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