Welcome to the monthly market update from Midland Wealth Management. I’m Chris Zabel, Portfolio Manager. Today I wanted to take a few moments to share the Investment Team’s views regarding the economy and financial markets.

Tariff Update

Trade negotiations have advanced in the wake of Liberation Day.

On May 8^th, the US and UK concluded what was described as a “breakthrough” agreement. US tariffs on UK vehicles, steel, and aluminum will be reduced, while the United Kingdom will lower duties on American beef and ethanol.

The accord also streamlines customs procedures, although broader issues remain subject to further discussion.

In continental Europe, the European Union has accelerated trade talks to diffuse the threat of 50% US tariffs on EU imports, scheduled to take effect on June 1^st.

Beyond the Eurozone, the US and China have agreed to a 90-day suspension of tariff escalations. US duties on Chinese goods will decline from 145 to 30%, and Chinese levies on US exports will fall from 125 to 10%. This provides both parties with a reprieve to negotiate a more comprehensive settlement.

Market Overview

These positive developments in trade policy have elicited favorable responses in equity markets.

The S&P 500 advanced by 6.3% in May and is now positive for the year, recouping the post-Liberation Day declines.

Corporate earnings have grown by more than 12% year over year, with revenues expanding by nearly 5%.

Nonetheless, companies have expressed caution: fourth-quarter earnings growth forecasts have been revised downward to approximately 5%, compared with earlier high-single-digit projections.

Leading firms, notably NVIDIA, continue to exceed expectations. Despite multibillion-dollar revenue impacts and additional export-restriction charges, NVIDIA’s shares rose 6% in after-hours trading following its earnings release and have appreciated by over 45% since the tariff announcements.

Looking ahead, equity prices are likely to exhibit moderate volatility and headline sensitivity.

Bond Markets & Federal Reserve Policy

In bond markets, Treasury yields have experienced heightened volatility.

The 10-year Treasury yield peaked at 4.6% before retreating to 4.4%, while the 30-year yield reached 5.1%—the highest level since 2023.

Market participants have attributed this volatility to fiscal concerns, inflationary pressures, and geopolitical uncertainties.

Moody’s recent downgrade of US sovereign debt from AAA to Aa1—citing elevated debt burdens and ongoing political gridlock—proved largely symbolic given prior downgrades by S&P and Fitch.

Additionally, the Federal Reserve elected to maintain its target range for the federal funds rate at 4.25 to 4.50%, acknowledging risks to both inflation and employment.

Market expectations for rate reductions have been scaled back from four cuts this year to fewer than two. Our view remains that a quarter-point reduction in September remains plausible.

Labor Market

The US labor market continues to demonstrate resilience.

The unemployment rate held steady at 4.2% in April, while payrolls increased by 177,000 positions, following a gain of 185,000 in March.

May employment is projected to rise by approximately 130,000.

Notable job creation has occurred in healthcare, transportation and warehousing, and financial services, notwithstanding recent workforce adjustments in the technology sector.

Outlook

In summary, tariff developments are expected to sustain periodic market volatility as investors digest incoming economic data, monetary policy shifts, and trade negotiations.

Nevertheless, our strategic emphasis on long-term fundamentals and disciplined risk management will guide portfolio positioning, ensuring readiness to capitalize on emerging opportunities and mitigate potential risks.

Thank you for joining me for this month’s market update.