Week in Review…

Markets started last week on a quiet note but quickly shifted gears as a flurry of economic data arrived in the second half. Key reports on housing, business sentiment, and inflation expectations gave investors fresh insight into the state of the economy—and where it might be headed.

Housing data was mixed but revealing. April’s existing home sales came in at 4.0 million, slightly below the 4.15 million forecast but flat from March, suggesting some stability. In contrast, new home sales surprised to the upside at 743,000, well above the 694,000 estimate and up 10.9% month-over-month. Adding to the optimism, building permits were revised upward, hinting that builders may be more confident about future demand than previously thought.

Thursday’s preliminary May Purchasing Managers’ Index (PMI) data showed improving sentiment in both manufacturing and services. Manufacturing, in particular, saw a notable shift from pessimism to cautious optimism, suggesting purchasing managers may be regaining confidence after a rocky April.

Treasury auctions last week offered fresh insight into market sentiment around inflation and credit risk. Yields on the 20-year bond and 10-year Treasury Inflation-protected Securities (TIPS) moved higher, but the rise appears more closely tied to shifting inflation expectations than to concerns over credit quality. This is particularly notable given Moody’s downgrade of U.S. credit earlier this month, a move that initially raised some alarms. However, the concurrent rise in 10-year breakeven rates suggests markets are more focused on inflation risks than on a deteriorating credit profile.

Markets paused Monday for the Memorial Day holiday but resume with a full slate of economic data as investors assess shifting dynamics in the U.S. and global economies.

The spotlight will be on Friday’s inflation data, with both Headline and Core Personal Consumption Expenditures (PCE) reports due. As the Fed’s preferred inflation gauge, Core PCE – adjusted for changing consumer behavior – will be closely watched. Later that day, the University of Michigan will release revised 1- and 5-year inflation expectations. The preliminary report earlier this month exceeded forecasts, and markets will be watching for any sentiment shifts, especially in light of recent tariff developments. These inflation readings will be accompanied by consumer sentiment and expectations data, offering further insight into the demand side of the economy.

Consumer health remains a key focus. On Tuesday, the Conference Board will release its Consumer Confidence Index, a measure of how optimistic consumers feel about the economy. Optimism tends to support stronger spending, which drives gross domestic product (GDP) growth. On Friday, markets will get a more concrete view of consumer behavior with the release of the personal spending report, which tracks changes in total consumer expenditures. Together, these reports will help gauge the strength of the retail consumer and, by extension, the broader economy.

On the business front, Tuesday brings data on both Headline and Core Durable Goods Orders. Strong readings here suggest rising manufacturing activity and a resilient labor market. Then on Friday, retail inventories data will offer a look at business inventory trends, particularly whether firms are continuing to front-load orders in anticipation of potential tariff impacts.

Economic Indicators:

1. CPI: Consumer Price Index measures the average change in prices paid by consumers for goods and services over time. Source: Bureau of Labor Statistics.
2. Core CPI: Core Consumer Price Index excludes food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Labor Statistics.
3. PPI: Producer Price Index measures the average change in selling prices received by domestic producers for their output. Source: Bureau of Labor Statistics.
4. Core PPI: Core Producer Price Index excludes food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Labor Statistics.
5. PCE: Personal Consumption Expenditures measure the average change in prices paid by consumers for goods and services. Source: Bureau of Economic Analysis.
6. Core PCE: Core Personal Consumption Expenditures exclude food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Economic Analysis.
7. Industrial Production: Measures the output of the industrial sector, including manufacturing, mining, and utilities. Source: Federal Reserve.
8. Mfg New Orders: Measures the value of new orders placed with manufacturers for durable and non-durable goods. Source: Census Bureau.
9. Durable New Orders: Measures the value of new orders placed with manufacturers of durable goods. Source: Census Bureau.
10. Durable Inventories: Measures the value of inventories held by manufacturers for durable goods. Source: Census Bureau.
11. Consumer Confidence (CB, 1985=100): Measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. Source: Conference Board.
12. ISM Manufacturing Report: Measures the economic health of the manufacturing sector based on surveys of purchasing managers. Source: Institute for Supply Management.
13. ISM Non-Manufacturing Report: Measures the economic health of the non-manufacturing sector based on surveys of purchasing managers. Source: Institute for Supply Management.
14. Leading Economic Index: Measures overall economic activity and predicts future economic trends. Source: Conference Board.
15. Building Permits (Mil. of Units, saar): Measures the number of new residential building permits issued. Source: Census Bureau.
16. Housing Starts (Mil. of Units, saar): Measures the number of new residential construction projects that have begun. Source: Census Bureau.
17. New Home Sales (Mil. of Units, saar): Measures the number of newly constructed homes sold. Source: Census Bureau.
18. SA: Seasonally adjusted.
19. SAAR: Seasonally adjusted annual rate.

Market Indices & Indicators:

1. S&P 500: A market-capitalization-weighted index of 500 leading publicly traded companies in the U.S., widely regarded as one of the best gauges of large U.S. stocks and the stock market overall.
2. Dow Jones 30: Also known as the Dow Jones Industrial Average, it tracks the share price performance of 30 large, publicly traded U.S. companies, serving as a barometer of the stock market and economy.
3. NASDAQ: The world’s first electronic stock exchange, primarily listing technology giants and operating 29 markets globally.
4. Russell 1000 Growth: Measures the performance of large-cap growth segment of the U.S. equity universe, including companies with higher price-to-book ratios and growth metrics.
5. Russell 1000 Value: Measures the performance of large-cap value segment of the U.S. equity universe, including companies with lower price-to-book ratios and growth metrics.
6. Russell 2000: A market index composed of 2,000 small-cap companies, widely used as a benchmark for small-cap mutual funds.
7. Wilshire 5000: A market-capitalization-weighted index capturing the performance of all American stocks actively traded in the U.S., representing the broadest measure of the U.S. stock market.
8. MSCI EAFE Index: An equity index capturing large and mid-cap representation across developed markets countries around the world, excluding the U.S. and Canada.
9. MSCI Emerging Market Index: Captures large and mid-cap representation across emerging markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country.
10. VIX: The CBOE Volatility Index measures the market’s expectations for volatility over the coming 30 days, often referred to as the “fear gauge.”
11. FTSE NAREIT All Equity REITs: Measures the performance of all publicly traded equity real estate investment trusts (REITs) listed in the U.S., excluding mortgage REITs.
12. S&P U.S. Aggregate Bond Index: Represents the performance of the U.S. investment-grade bond market, including government, corporate, mortgage-backed, and asset-backed securities.
13. 3-Month T-bill Yield (%): The yield on U.S. Treasury bills with a maturity of three months, reflecting short-term interest rates.
14. 10-Year Treasury Yield (%): The yield on U.S. Treasury bonds with a maturity of ten years, reflecting long-term interest rates.
15. 10Y-2Y Treasury Spread (%): The difference between the yields on 10-year and 2-year U.S. Treasury bonds, often used as an indicator of economic expectations.
16. WTI Crude ($/bl): The price per barrel of West Texas Intermediate crude oil, a benchmark for U.S. oil prices.
17. Gold ($/Troy Oz): The price per troy ounce of gold, a standard measure for gold prices.
18. Bitcoin: A decentralized digital currency without a central bank or single administrator, which can be sent from user to user on the peer-to-peer bitcoin network.

This content was developed by Cambridge from sources believed to be reliable. This content is provided for informational purposes only and should not be construed or acted upon as individualized investment advice. It should not be considered a recommendation or solicitation. Information is subject to change. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice. The information in this material is not intended as tax or legal advice.

Investing involves risk. Depending on the different types of investments there may be varying degrees of risk. Socially responsible investing does not guarantee any amount of success. Clients and prospective clients should be prepared to bear investment loss including loss of original principal. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.

Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, and investment advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Both are wholly-owned subsidiaries of Cambridge Investment Group, Inc. V.CIR.0525-1641

Week in Review…

The Consumer Price Index (CPI) for April rose 0.2% month-over-month and 2.3% year-over-year, in line with expectations. Core CPI, which excludes food and energy, also increased 0.2% on the month, signaling persistent underlying inflation pressures despite a broader disinflationary trend. Shelter costs remained a key driver, though their pace of increase has moderated slightly, offering some relief to policymakers.

U.S. retail sales rose just 0.1% in April 2025, slowing sharply from March’s 1.7% gain. The boost from pre-tariff vehicle purchases faded, and core retail sales fell 0.2%. Economic uncertainty and stock market volatility led households to cut discretionary spending, despite strong wage growth and a resilient labor market.

Producer Price Index (PPI) data added a deflationary counterpoint. April’s PPI unexpectedly declined by 0.5% month-over-month, the sharpest drop since October 2023.

Federal Reserve Chair Jerome Powell, speaking Thursday, acknowledged the recent inflation data as “encouraging,” but emphasized that policy must remain vigilant. He cautioned that long-term interest rates may stay elevated due to persistent supply-side shocks and fiscal imbalances. Powell reiterated the Fed’s data-dependent stance, signaling no imminent rate cuts while inflation remains above target.

Looking ahead to next week, crude oil inventories will be released on Wednesday, May 21. Recent weeks have shown consistent draws in stockpiles, with the May 14 report showing a larger-than-expected decline of 2.4 million barrels. Another significant draw could signal strong demand or supply constraints, potentially influencing energy prices and inflation expectations.

On Thursday, May 22, the Manufacturing and Services Purchasing Managers’ Indices (PMIs) for May will be published. The manufacturing sector has shown signs of stabilization, while services have remained relatively robust. Markets will be watching closely for any signs of slowing momentum or inflationary pressures within input and output prices.

New Home Sales data for April is scheduled for release on Friday, May 23. This report will provide a gauge of housing market resilience amid elevated mortgage rates. Previous months have shown mixed trends, with affordability constraints weighing on demand despite limited supply. A stronger-than-expected reading could suggest renewed consumer confidence and support for residential investment. Together, these data points will help shape expectations for the Federal Reserve’s next moves, especially as policymakers remain focused on balancing inflation control with sustaining economic growth.

Economic Indicators:

1. CPI: Consumer Price Index measures the average change in prices paid by consumers for goods and services over time. Source: Bureau of Labor Statistics.
2. Core CPI: Core Consumer Price Index excludes food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Labor Statistics.
3. PPI: Producer Price Index measures the average change in selling prices received by domestic producers for their output. Source: Bureau of Labor Statistics.
4. Core PPI: Core Producer Price Index excludes food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Labor Statistics.
5. PCE: Personal Consumption Expenditures measure the average change in prices paid by consumers for goods and services. Source: Bureau of Economic Analysis.
6. Core PCE: Core Personal Consumption Expenditures exclude food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Economic Analysis.
7. Industrial Production: Measures the output of the industrial sector, including manufacturing, mining, and utilities. Source: Federal Reserve.
8. Mfg New Orders: Measures the value of new orders placed with manufacturers for durable and non-durable goods. Source: Census Bureau.
9. Durable New Orders: Measures the value of new orders placed with manufacturers of durable goods. Source: Census Bureau.
10. Durable Inventories: Measures the value of inventories held by manufacturers for durable goods. Source: Census Bureau.
11. Consumer Confidence (CB, 1985=100): Measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. Source: Conference Board.
12. ISM Manufacturing Report: Measures the economic health of the manufacturing sector based on surveys of purchasing managers. Source: Institute for Supply Management.
13. ISM Non-Manufacturing Report: Measures the economic health of the non-manufacturing sector based on surveys of purchasing managers. Source: Institute for Supply Management.
14. Leading Economic Index: Measures overall economic activity and predicts future economic trends. Source: Conference Board.
15. Building Permits (Mil. of Units, saar): Measures the number of new residential building permits issued. Source: Census Bureau.
16. Housing Starts (Mil. of Units, saar): Measures the number of new residential construction projects that have begun. Source: Census Bureau.
17. New Home Sales (Mil. of Units, saar): Measures the number of newly constructed homes sold. Source: Census Bureau.
18. SA: Seasonally adjusted.
19. SAAR: Seasonally adjusted annual rate.

Market Indices & Indicators:

1. S&P 500: A market-capitalization-weighted index of 500 leading publicly traded companies in the U.S., widely regarded as one of the best gauges of large U.S. stocks and the stock market overall.
2. Dow Jones 30: Also known as the Dow Jones Industrial Average, it tracks the share price performance of 30 large, publicly traded U.S. companies, serving as a barometer of the stock market and economy.
3. NASDAQ: The world’s first electronic stock exchange, primarily listing technology giants and operating 29 markets globally.
4. Russell 1000 Growth: Measures the performance of large-cap growth segment of the U.S. equity universe, including companies with higher price-to-book ratios and growth metrics.
5. Russell 1000 Value: Measures the performance of large-cap value segment of the U.S. equity universe, including companies with lower price-to-book ratios and growth metrics.
6. Russell 2000: A market index composed of 2,000 small-cap companies, widely used as a benchmark for small-cap mutual funds.
7. Wilshire 5000: A market-capitalization-weighted index capturing the performance of all American stocks actively traded in the U.S., representing the broadest measure of the U.S. stock market.
8. MSCI EAFE Index: An equity index capturing large and mid-cap representation across developed markets countries around the world, excluding the U.S. and Canada.
9. MSCI Emerging Market Index: Captures large and mid-cap representation across emerging markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country.
10. VIX: The CBOE Volatility Index measures the market’s expectations for volatility over the coming 30 days, often referred to as the “fear gauge.”
11. FTSE NAREIT All Equity REITs: Measures the performance of all publicly traded equity real estate investment trusts (REITs) listed in the U.S., excluding mortgage REITs.
12. S&P U.S. Aggregate Bond Index: Represents the performance of the U.S. investment-grade bond market, including government, corporate, mortgage-backed, and asset-backed securities.
13. 3-Month T-bill Yield (%): The yield on U.S. Treasury bills with a maturity of three months, reflecting short-term interest rates.
14. 10-Year Treasury Yield (%): The yield on U.S. Treasury bonds with a maturity of ten years, reflecting long-term interest rates.
15. 10Y-2Y Treasury Spread (%): The difference between the yields on 10-year and 2-year U.S. Treasury bonds, often used as an indicator of economic expectations.
16. WTI Crude ($/bl): The price per barrel of West Texas Intermediate crude oil, a benchmark for U.S. oil prices.
17. Gold ($/Troy Oz): The price per troy ounce of gold, a standard measure for gold prices.
18. Bitcoin: A decentralized digital currency without a central bank or single administrator, which can be sent from user to user on the peer-to-peer bitcoin network.

This content was developed by Cambridge from sources believed to be reliable. This content is provided for informational purposes only and should not be construed or acted upon as individualized investment advice. It should not be considered a recommendation or solicitation. Information is subject to change. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice. The information in this material is not intended as tax or legal advice.

Investing involves risk. Depending on the different types of investments there may be varying degrees of risk. Socially responsible investing does not guarantee any amount of success. Clients and prospective clients should be prepared to bear investment loss including loss of original principal. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.

Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, and investment advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Both are wholly-owned subsidiaries of Cambridge Investment Group, Inc. V.CIR.0525-1991

Week in Review…

Last week was pivotal for market analysts, despite the lower volume of reports. The week was front-loaded with significant data providing crucial insights into various market sectors.

The biggest headline was the Federal Reserve’s decision to keep the federal funds rate at 4.25% to 4.5%, as expected. Despite solid economic activity and a stable labor market, inflation remains above the Fed’s 2% target. The Fed continues to be data-dependent and cautious, closely monitoring the risks of higher unemployment and inflation. It also confirmed the continued reduction of its Treasury securities and agency debt holdings.

Several noteworthy reports on employment and inflation were released. Thursday’s Q1 2025 Nonfarm Productivity report, measuring labor efficiency, fell short of expectations at -0.8% versus an expected -0.4%, significantly below the prior quarter’s 1.7%. The Unit Labor Costs report indicated increasing inflation pressures, with a 5.7% quarter-over-quarter rise compared to the previous quarter’s 2.0%. Together, these reports highlight the growing inflationary pressures within the economy.

Despite these disappointing numbers, the labor market showed strength with both Continuing Jobless Claims and Initial Jobless Claims beating expectations. This trend was supported by the prior week’s Nonfarm payroll numbers. The 3-year and 10-year Notes auctions provided further insight into the bond market’s view of inflation. Three-year yields increased, indicating higher inflation expectations, while the 10-year Treasury yield decreased, suggesting this trend may not persist long-term.

Finally, ISM Non-Manufacturing data released on Monday showed higher-than-expected employment and Purchasing Managers’ Index (PMI) sentiment data points. However, Non-Manufacturing Prices data reflected growing inflationary pressures. As these reports illustrate, inflation remains a central concern, influencing both market expectations and Federal Reserve policies.

This week promises to be significant as inflation takes center stage. Two major inflation reports are set for release — on Tuesday, the U.S. Bureau of Labor Statistics will unveil the Headline and Core Consumer Price Index (CPI) month-over-month numbers for April, followed by the Headline and Core Producer Price Index (PPI) on Thursday. Markets will be observing these figures to assess the impact, if any, that tariffs have had.

Continuing the inflation trend, Friday’s Michigan 1- and 5-year Inflation Expectation will gauge the percentage that consumers anticipate the price of goods and services to change over the next one and five years. Although preliminary, these reports will provide valuable insights into potential future price movements. Collectively, these reports will offer a snapshot of economic health and potential inflationary trends.

In addition to inflation data, the markets will receive several key indicators related to the real economy. On Thursday, Headline and Core Retail Sales will be released, serving as a crucial measures of consumer spending, which constitutes a significant portion of U.S. GDP. The same day will also see the release of Industrial Production and Business Inventory data, offering deeper insights into the dynamics of the business sector. Friday will provide a closer look at the housing market with the release of the Building Permits report and Housing Starts, both of which will reflect builders’ confidence levels.

Economic Indicators:

1. CPI: Consumer Price Index measures the average change in prices paid by consumers for goods and services over time. Source: Bureau of Labor Statistics.
2. Core CPI: Core Consumer Price Index excludes food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Labor Statistics.
3. PPI: Producer Price Index measures the average change in selling prices received by domestic producers for their output. Source: Bureau of Labor Statistics.
4. Core PPI: Core Producer Price Index excludes food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Labor Statistics.
5. PCE: Personal Consumption Expenditures measure the average change in prices paid by consumers for goods and services. Source: Bureau of Economic Analysis.
6. Core PCE: Core Personal Consumption Expenditures exclude food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Economic Analysis.
7. Industrial Production: Measures the output of the industrial sector, including manufacturing, mining, and utilities. Source: Federal Reserve.
8. Mfg New Orders: Measures the value of new orders placed with manufacturers for durable and non-durable goods. Source: Census Bureau.
9. Durable New Orders: Measures the value of new orders placed with manufacturers of durable goods. Source: Census Bureau.
10. Durable Inventories: Measures the value of inventories held by manufacturers for durable goods. Source: Census Bureau.
11. Consumer Confidence (CB, 1985=100): Measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. Source: Conference Board.
12. ISM Manufacturing Report: Measures the economic health of the manufacturing sector based on surveys of purchasing managers. Source: Institute for Supply Management.
13. ISM Non-Manufacturing Report: Measures the economic health of the non-manufacturing sector based on surveys of purchasing managers. Source: Institute for Supply Management.
14. Leading Economic Index: Measures overall economic activity and predicts future economic trends. Source: Conference Board.
15. Building Permits (Mil. of Units, saar): Measures the number of new residential building permits issued. Source: Census Bureau.
16. Housing Starts (Mil. of Units, saar): Measures the number of new residential construction projects that have begun. Source: Census Bureau.
17. New Home Sales (Mil. of Units, saar): Measures the number of newly constructed homes sold. Source: Census Bureau.
18. SA: Seasonally adjusted.
19. SAAR: Seasonally adjusted annual rate.

Market Indices & Indicators:

1. S&P 500: A market-capitalization-weighted index of 500 leading publicly traded companies in the U.S., widely regarded as one of the best gauges of large U.S. stocks and the stock market overall.
2. Dow Jones 30: Also known as the Dow Jones Industrial Average, it tracks the share price performance of 30 large, publicly traded U.S. companies, serving as a barometer of the stock market and economy.
3. NASDAQ: The world’s first electronic stock exchange, primarily listing technology giants and operating 29 markets globally.
4. Russell 1000 Growth: Measures the performance of large-cap growth segment of the U.S. equity universe, including companies with higher price-to-book ratios and growth metrics.
5. Russell 1000 Value: Measures the performance of large-cap value segment of the U.S. equity universe, including companies with lower price-to-book ratios and growth metrics.
6. Russell 2000: A market index composed of 2,000 small-cap companies, widely used as a benchmark for small-cap mutual funds.
7. Wilshire 5000: A market-capitalization-weighted index capturing the performance of all American stocks actively traded in the U.S., representing the broadest measure of the U.S. stock market.
8. MSCI EAFE Index: An equity index capturing large and mid-cap representation across developed markets countries around the world, excluding the U.S. and Canada.
9. MSCI Emerging Market Index: Captures large and mid-cap representation across emerging markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country.
10. VIX: The CBOE Volatility Index measures the market’s expectations for volatility over the coming 30 days, often referred to as the “fear gauge.”
11. FTSE NAREIT All Equity REITs: Measures the performance of all publicly traded equity real estate investment trusts (REITs) listed in the U.S., excluding mortgage REITs.
12. S&P U.S. Aggregate Bond Index: Represents the performance of the U.S. investment-grade bond market, including government, corporate, mortgage-backed, and asset-backed securities.
13. 3-Month T-bill Yield (%): The yield on U.S. Treasury bills with a maturity of three months, reflecting short-term interest rates.
14. 10-Year Treasury Yield (%): The yield on U.S. Treasury bonds with a maturity of ten years, reflecting long-term interest rates.
15. 10Y-2Y Treasury Spread (%): The difference between the yields on 10-year and 2-year U.S. Treasury bonds, often used as an indicator of economic expectations.
16. WTI Crude ($/bl): The price per barrel of West Texas Intermediate crude oil, a benchmark for U.S. oil prices.
17. Gold ($/Troy Oz): The price per troy ounce of gold, a standard measure for gold prices.
18. Bitcoin: A decentralized digital currency without a central bank or single administrator, which can be sent from user to user on the peer-to-peer bitcoin network.

This content was developed by Cambridge from sources believed to be reliable. This content is provided for informational purposes only and should not be construed or acted upon as individualized investment advice. It should not be considered a recommendation or solicitation. Information is subject to change. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice. The information in this material is not intended as tax or legal advice.

Investing involves risk. Depending on the different types of investments there may be varying degrees of risk. Socially responsible investing does not guarantee any amount of success. Clients and prospective clients should be prepared to bear investment loss including loss of original principal. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.

Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, and investment advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Both are wholly-owned subsidiaries of Cambridge Investment Group, Inc. V.CIR.0525-1904

Week in Review…

Last week brought a series of economic indicators that painted a cautious picture of the current economic landscape. On Monday, the Conference Board reported a notable drop in the Consumer Confidence Index for April, which fell by 7.9 points to 86.0 — the lowest level since May 2020. This marked the fifth consecutive monthly decline, underscoring mounting pessimism about future business conditions, employment prospects, and income levels. Also on Monday, the Bureau of Labor Statistics (BLS) released its Job Openings and Labor Turnover Survey (JOLTS) for March, showing job openings held steady at 7.2 million but were down by 901,000 from a year earlier. The stability in job openings and hires, coupled with an unchanged quit rate, pointed to a cooling labor market and heightened caution among workers.

On Tuesday, the Bureau of Economic Analysis published its advance estimate for first-quarter 2025 GDP, which signaled a contraction at an annualized rate of 0.3%. This decline was largely driven by a surge in imports and reduced government spending, reflecting softer consumer demand and tighter fiscal policy. Meanwhile, the Personal Consumption Expenditures (PCE) price index rose by 3.6% in the first quarter, up from 2.4% in the prior quarter, highlighting renewed inflationary pressures and further clouding the economic outlook.

By Thursday, the BLS reported that nonfarm payroll employment had increased by 177,000 jobs in April, while the unemployment rate held steady at 4.2%. In the markets, a generally bullish tone prevailed, buoyed by tentative signs of easing tariff tensions and optimism about potential progress in trade negotiations.

Taken together, these indicators suggest a U.S. economy facing headwinds from both softening consumer sentiment and persistent inflation, with the labor market showing early signs of moderation.

On Wednesday, the Institute for Supply Management (ISM) reported that the Manufacturing Purchasing Managers’ Index (PMI) for March 2025 was 49.5, indicating a slight contraction due to challenges in new orders and production. This follows marginal expansions in February and January after 26 months of contraction. Demand and output weakened, while input costs rose, negatively impacting economic growth. In contrast, the Services PMI showed strong growth with a reading of 56.3, driven by increased business activity.

On Thursday, durable goods orders saw a significant rise, particularly in the aerospace sector, though other areas remained subdued due to economic uncertainties stemming from tariffs. Friday’s final April Michigan Consumer Sentiment was revised upward from the initial print, reflecting better current and future expectations, although it remained at the lowest level since July 2022.

This week’s economic calendar is relatively light, but a few key reports will offer valuable insights into the state of the economy. Highlights include the April ISM Services Index, the March U.S. trade balance, weekly jobless claims, and Q1 productivity figures.

Monday brings the release of the ISM Manufacturing and Services Purchasing Managers’ Index (PMI) data. These indices serve as important barometers for the health of both the manufacturing and service sectors. By tracking activity levels, the data will provide a snapshot of how these sectors are performing, as well as their potential impact on overall economic growth.

Wednesday will be a pivotal day as the Federal Reserve announces its latest interest rate decision. This meeting takes place against a backdrop of heightened uncertainty, particularly in light of recently imposed tariffs. Market participants will be closely watching the Fed’s policy stance to gauge whether interest rates will remain steady or be adjusted in response to these economic headwinds. The Fed’s decision is especially significant, as it will influence borrowing costs, consumer spending, and overall economic activity, shaping the trajectory of the economy amid ongoing tariff-related challenges.

Economic Indicators:

1. CPI: Consumer Price Index measures the average change in prices paid by consumers for goods and services over time. Source: Bureau of Labor Statistics.
2. Core CPI: Core Consumer Price Index excludes food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Labor Statistics.
3. PPI: Producer Price Index measures the average change in selling prices received by domestic producers for their output. Source: Bureau of Labor Statistics.
4. Core PPI: Core Producer Price Index excludes food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Labor Statistics.
5. PCE: Personal Consumption Expenditures measure the average change in prices paid by consumers for goods and services. Source: Bureau of Economic Analysis.
6. Core PCE: Core Personal Consumption Expenditures exclude food and energy prices to provide a clearer picture of long-term inflation trends. Source: Bureau of Economic Analysis.
7. Industrial Production: Measures the output of the industrial sector, including manufacturing, mining, and utilities. Source: Federal Reserve.
8. Mfg New Orders: Measures the value of new orders placed with manufacturers for durable and non-durable goods. Source: Census Bureau.
9. Durable New Orders: Measures the value of new orders placed with manufacturers of durable goods. Source: Census Bureau.
10. Durable Inventories: Measures the value of inventories held by manufacturers for durable goods. Source: Census Bureau.
11. Consumer Confidence (CB, 1985=100): Measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. Source: Conference Board.
12. ISM Manufacturing Report: Measures the economic health of the manufacturing sector based on surveys of purchasing managers. Source: Institute for Supply Management.
13. ISM Non-Manufacturing Report: Measures the economic health of the non-manufacturing sector based on surveys of purchasing managers. Source: Institute for Supply Management.
14. Leading Economic Index: Measures overall economic activity and predicts future economic trends. Source: Conference Board.
15. Building Permits (Mil. of Units, saar): Measures the number of new residential building permits issued. Source: Census Bureau.
16. Housing Starts (Mil. of Units, saar): Measures the number of new residential construction projects that have begun. Source: Census Bureau.
17. New Home Sales (Mil. of Units, saar): Measures the number of newly constructed homes sold. Source: Census Bureau.
18. SA: Seasonally adjusted.
19. SAAR: Seasonally adjusted annual rate.

Market Indices & Indicators:

1. S&P 500: A market-capitalization-weighted index of 500 leading publicly traded companies in the U.S., widely regarded as one of the best gauges of large U.S. stocks and the stock market overall.
2. Dow Jones 30: Also known as the Dow Jones Industrial Average, it tracks the share price performance of 30 large, publicly traded U.S. companies, serving as a barometer of the stock market and economy.
3. NASDAQ: The world’s first electronic stock exchange, primarily listing technology giants and operating 29 markets globally.
4. Russell 1000 Growth: Measures the performance of large-cap growth segment of the U.S. equity universe, including companies with higher price-to-book ratios and growth metrics.
5. Russell 1000 Value: Measures the performance of large-cap value segment of the U.S. equity universe, including companies with lower price-to-book ratios and growth metrics.
6. Russell 2000: A market index composed of 2,000 small-cap companies, widely used as a benchmark for small-cap mutual funds.
7. Wilshire 5000: A market-capitalization-weighted index capturing the performance of all American stocks actively traded in the U.S., representing the broadest measure of the U.S. stock market.
8. MSCI EAFE Index: An equity index capturing large and mid-cap representation across developed markets countries around the world, excluding the U.S. and Canada.
9. MSCI Emerging Market Index: Captures large and mid-cap representation across emerging markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country.
10. VIX: The CBOE Volatility Index measures the market’s expectations for volatility over the coming 30 days, often referred to as the “fear gauge.”
11. FTSE NAREIT All Equity REITs: Measures the performance of all publicly traded equity real estate investment trusts (REITs) listed in the U.S., excluding mortgage REITs.
12. S&P U.S. Aggregate Bond Index: Represents the performance of the U.S. investment-grade bond market, including government, corporate, mortgage-backed, and asset-backed securities.
13. 3-Month T-bill Yield (%): The yield on U.S. Treasury bills with a maturity of three months, reflecting short-term interest rates.
14. 10-Year Treasury Yield (%): The yield on U.S. Treasury bonds with a maturity of ten years, reflecting long-term interest rates.
15. 10Y-2Y Treasury Spread (%): The difference between the yields on 10-year and 2-year U.S. Treasury bonds, often used as an indicator of economic expectations.
16. WTI Crude ($/bl): The price per barrel of West Texas Intermediate crude oil, a benchmark for U.S. oil prices.
17. Gold ($/Troy Oz): The price per troy ounce of gold, a standard measure for gold prices.
18. Bitcoin: A decentralized digital currency without a central bank or single administrator, which can be sent from user to user on the peer-to-peer bitcoin network.

This content was developed by Cambridge from sources believed to be reliable. This content is provided for informational purposes only and should not be construed or acted upon as individualized investment advice. It should not be considered a recommendation or solicitation. Information is subject to change. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice. The information in this material is not intended as tax or legal advice.

Investing involves risk. Depending on the different types of investments there may be varying degrees of risk. Socially responsible investing does not guarantee any amount of success. Clients and prospective clients should be prepared to bear investment loss including loss of original principal. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.

Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, and investment advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Both are wholly-owned subsidiaries of Cambridge Investment Group, Inc. V.CIR.0525-1784

Week in Review…

U.S. equities rose this week, with the S&P 500 and Nasdaq posting their second-best weeks of the year. Both indices recorded their second weekly gain in the past three weeks following the significant early April selloff. For the week ending, April 25, 2025:

• The S&P 500 rebounded, up 4.59%
• The Dow Jones Industrial Average increased by 2.48%
• The tech-heavy Nasdaq rallied by 6.73%
• The yield on the 10-Year Treasury dipped to 4.24% from last week’s reading of 4.34%, remaining below the long-term average of 5.84%

On Wednesday, the Institute for Supply Management (ISM) reported that the Manufacturing Purchasing Managers’ Index (PMI) for March 2025 was 49.5, indicating a slight contraction due to challenges in new orders and production. This follows marginal expansions in February and January after 26 months of contraction. Demand and output weakened, while input costs rose, negatively impacting economic growth. In contrast, the Services PMI showed strong growth with a reading of 56.3, driven by increased business activity.

On Thursday, durable goods orders saw a significant rise, particularly in the aerospace sector, though other areas remained subdued due to economic uncertainties stemming from tariffs. Friday’s final April Michigan Consumer Sentiment was revised upward from the initial print, reflecting better current and future expectations, although it remained at the lowest level since July 2022.

Market Liquidity: Some Drivers and Potential Paths Forward

In recent weeks, bond markets have experienced a significant decline in liquidity, accompanied by increased price volatility. Yields for fixed income securities across the board have risen, and yield curves have steepened. This repricing reflects a heightened risk aversion among investors, who are now demanding higher returns for lending money to various institutions, including governments, corporations, and households. Several factors contribute to this dynamic, with decreased market liquidity being a key one. While some effects may be temporary, others are likely to persist. The spotlight aims to explore both these aspects.

Current Market Conditions

Currently, market volatility is high, prompting investors to seek safer, cash-like investments. Large fixed income ETFs, which serve as proxies for corporate credit risk, have seen significant outflows, indicating that retail investors are selling in large numbers. The April tax season has also impacted market liquidity. The Treasury’s cash holdings at the Federal Reserve, known as the Treasury General Account (TGA), have increased substantially. From April 9 to April 24, the TGA grew by nearly $300 billion, representing tax receipts from corporations and households. This influx of funds acts as a drain on market liquidity. However, it is expected that much of this liquidity will return to the economy as the Treasury draws on its account to fund sizable government spending needs.

Yield Curve and Dollar Dynamics

Long-term Treasury yields have risen relative to short-term yields, indicating that investors are demanding higher term premiums to lend money to the government. This steepening of the yield curve has coincided with a decline in the value of the dollar against major currencies, leading to speculation that foreign investors might be withdrawing capital from the U.S. However, evidence of this is mixed. The long-term difference between the 10-year and 2-year Treasury yields serves as a proxy for the term premium demanded by investors. As can be seen in the 10-2 spread, the term premium has been depressed (even negative) in recent years. Recently, this term premium has been returning to normal long-term levels, suggesting that the current yield curve movements are not unprecedented.

The Basis Trade and Market Volatility

One source of recent volatility in bond markets is the so-called basis trade. This strategy exploits the liquidity differences between certain types of Treasuries and derivatives like Treasury futures. Investors buy cheaper Treasury securities and use them as collateral for short positions in Treasury futures, creating an arbitrage spread or “basis.” Hedge funds amplify this trade by borrowing money to purchase Treasury securities, maximizing returns. While this strategy is not inherently problematic, its current scale is concerning. Analysts estimate the trade’s notional size to be close to $800 billion, with some estimates even higher. Market volatility can lead to rapid unwinding of these positions, causing liquidity issues and market dysfunction. This was evident in March 2020 when the Federal Reserve had to intervene to stabilize Treasury markets. Recent volatility and liquidity erosion may be partly due to unwinding of the basis trade. Should this trade become a smaller percentage of the Treasury market overall, this could work to undo some of the recent effects we have observed (the opposite is true, as well).

While U.S. bond market liquidity may be structurally impaired, many short-term factors have contributed to recent conditions and are likely to subside in the coming months. These include retail investor sales, reduced Treasury cash balances post-tax season, and unwinding of bearish trades in the dollar and the basis trade. If these effects diminish and term premiums in Treasury markets return to historical norms, fixed income markets could rebound and contribute positively to diversified portfolios. However, the size of the basis trade remains a concern, as it could continue to be a source of volatility in Treasury markets.

Next week, key economic indicators will be released, offering insights into the U.S. economy. The ADP National Employment Report for April will provide a preview of private sector job growth ahead of the official employment report. The Job Openings and Labor Turnover Survey (JOLTS) report for March will detail job vacancies, hires, and separations, crucial for understanding labor market dynamics.

The GDP report for Q1 2025 will show economic activity, with a forecasted 0.4% change for the quarter. The Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure, is expected to show a 0.1% change for March, down from 0.4% in February.

The Conference Board Consumer Confidence Index for April is expected to decline from 92.9 to 88.5, reflecting consumer sentiment. Additionally, pending home sales for March will indicate the health of the housing market and the ISM Manufacturing PMI will provide insights into the manufacturing sector’s performance.

This content was developed by Cambridge from sources believed to be reliable. This content is provided for informational purposes only and should not be construed or acted upon as individualized investment advice. It should not be considered a recommendation or solicitation. Information is subject to change. Any forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice. The information in this material is not intended as tax or legal advice.

Investing involves risk. Depending on the different types of investments there may be varying degrees of risk. Socially responsible investing does not guarantee any amount of success. Clients and prospective clients should be prepared to bear investment loss including loss of original principal. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange.

Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, and investment advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Both are wholly-owned subsidiaries of Cambridge Investment Group, Inc. V.CIR.0425-1719