Forget the notion of “sell in May and go away.” There are a set of dynamic metrics at work within the economy framed by “Trumponomics,” which refers broadly to his administration’s approach, that includes tax cuts, deregulation, protectionism and trade policies that the stock market is embracing.
Nearly halfway through 2025, the U.S. equity market has endured a 20% correction, a radical set of tariff policies employed or threatened, sweeping D.O.G.E. actions, the DeepSeek torpedo into the AI port bow, followed by a reaffirmation of the historical capex spending binge by the hyperscalers and sovereign governments (Saudi Arabia, etc.) and two scares within the Treasury auction market.
At the end of 2024 there was a record $7.24 trillion in money markets. Today, that number is about $6.94 trillion, reflecting that some risk-on behavior per the tariff bark is bigger than the tariff bite narrative unfolding on a weekly basis. One could say that outside of some disgruntled federal employees getting discharged via the mission statement of ridding government of waste, fraud and abuse, the U.S. economy is fine.
In fact, the left-leaning Atlanta Federal Reserve just gave a major thumbs up to the economic outlook for the domestic economy. The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2025 was 3.8% on May 30, up from 2.2% on May 27.
After recent releases from the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, the nowcast of the contribution of net exports to second-quarter real GDP growth increased from -0.64 percentage points to 1.45 percentage points, while the nowcasts of second-quarter real personal consumption expenditures growth and second-quarter real gross private domestic investment growth declined from 3.7% and -0.2%, respectively, to 3.3% and -1.4%.
This is a phenomenal upward revision, but most market participants that follow the Atlanta Fed know their forecasts endure wide swings week to week. But one thing that seems more certain now is that the risk of recession is being reduced substantially. The Conference Board’s Consumer Confidence Index jumped to 98.0 in May (consensus 87.0) from a downwardly revised 85.7 (from 86.0) in June, breaking a string of five consecutive months of decline.
Key Factors
- The Present Situation Index rose from 131.1 to 135.9.
- The Expectations Index surged from 55.4 to 72.8 but remains below the threshold of 80 that usually signals a recession ahead.
- Average 12-month inflation expectations settled back from 7.0% in April to 6.5% in May.
Big Picture
- The key takeaway from the report is that there was a clear connection between the increase in consumer confidence and the pause in the reciprocal tariff rates, which triggered a material rally in stock prices and improved forecasts for the economic outlook. Note: roughly half of the responses came after the May 12 news that the United States and China were pausing their respective reciprocal tariff rates. (Source: briefing.com.)
In my view, the main concerns as to why there is nearly $7 trillion in money markets lies in one chart — that of the dollar — and that of the weight of the $36+ trillion federal debt is having on it due to the fact that $9 trillion of it matures this year and has to be rolled over into higher yielding bills and bonds. Those free-money days of nearly 0% yields are over, and it is incumbent upon Treasury Secretary Scott Bessent to weigh in more heavily on this than his boss Trump would like.
Legendary Wall Street investor and founder of Bridgewater Associates Ray Dalio, in his soon-to-be-released book, “How Countries Go Broke: The Big Cycle” (June 2025), maintains a nation’s annual deficit should not exceed 3% of GDP. Our current deficit is running at almost 6.6%. And this is in good times.
Imagine if a recession was a real risk or imminent? Thankfully, the market believes the economy is on good footing and Trump, Bessent and a GOP majority-controlled Congress need to take this deficit and federal debt issue to task while there is this twisted honeymoon period with a federal debt running at over 120% of GDP. Can the economy prosper out of debt? Sure. But the spending has to stop rising. Prosperity in combination with fiscal conservatism is the way out of this mess. And if the Atlanta Fed is on to something, then now is the time to strike while the political iron is hot.
Both bond and stock markets will trade higher if Congress delivers a big and beautiful bill that does consider spending discipline while loosening the regulatory reins and fostering tax relief to the middle-class while aggressively transforming the job market to embrace the highly productive disruptive forces of AI, so as to fill the employment vacuum within the industries it stands to impact the most. For this administration, this is a Job One mission statement that should be of the highest priority.
