May 13, 2025

QuickTakes

A Quiet Day For A Change

The Dow Jones Industrial Average wasn't up or down by 1,000 points today. The S&P 500's VIX was back down below 20 on Monday and again today (chart). The yield spread between corporate junk bonds and the 10-year Treasury bond has narrowed recently. The latter seems to be settling down around 4.50%, in the middle of our 2025 range of 4.25%-4.75%. President Donald Trump is in the Middle East and focusing his remarks on relationships with Saudi Arabia today.

Following the surprising de-escalation of the China-US trade war over the weekend, Wall Street's economists are scrambling to lower their odds of a recession this year. The economists and strategists at Goldman Sachs reduced their US recession probability for the next 12 months from 45% to 35% and raised their S&P 500 year-end target to 6100. JP Morgan's chief economist lowered his recession odds to "now below 50%." The odds of a recession according to Polymarket.com dropped from 51% on Friday to 41% on Monday (chart). We lowered our recession odds on Monday from 35% to 25% and raised our year-end S&P 500 target from 6000 to 6500.

Giving stock prices a lift today was April's CPI report. It was in line with our expectations but slightly lower than the consensus. The headline and core CPI inflation rates were 2.3% and 2.8% y/y. Even more impressive is that excluding shelter costs, they were up just 1.4% and 1.8% (chart). Trump's tariffs (10% base and 25% on autos, aluminum, and steel) are likely to boost imported goods prices over the next few months. A stronger dollar might offset these tariffs somewhat. Energy prices might also remain subdued.

Today's release of NFIB’s survey of small business owners for April showed that the Small Business Optimism Index declined by 1.6 points last month to 95.8, the second consecutive month below the 51-year average of 98. The Uncertainty Index decreased four points from the March level to 92 but remained far above the historical average of 68 (chart).

Seasonally adjusted, 34% of business owners reported job openings they could not fill in April, down six points from March (chart). That was still a relatively high reading. The percentage of small business owners planning to increase hiring over the next three months ticked up to 13%, which is a relatively normal reading for this series.

Inflationary pressures remained relatively high during April according to the latest NFIB survey (chart). All in all, April's NFIB survey was not as stagflationary as we expected it might be in response to Trump's Tariff Turmoil (TTT). Then again, on April 9, Trump postponed his April 2 Liberation Day reciprocal tariffs. The stock market has been soaring since then, suggesting that investors, like small business owners, are less fearful about the negative economic impact of TTT.

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