Cautious Optimism: Shift Exposure, Stay Balanced

by Astoria Portfolio Advisors, 6/13/25

Despite inflation worries, fiscal deficit concerns, and continued geopolitical conflict, equity markets posted strong returns in May on the back of easing tariff tensions, lower probability of recession, and better than expected US Q1 earnings. Technology led the rebound as the Nasdaq Composite Index gained 9.7%, while the S&P 500 Index was up 6.3%, both posting their best monthly gains since November 2023. Following US growth and US large-caps, US mid-caps rose 5.5% while international developed equities also increased 5.2%. Aside from high yield credits (+1.8%) and investment grade corporates (+0.3%), bonds were mostly down as 7-10 year US Treasuries and the US Aggregate Bond Index both fell (-1.2% and -0.7%, respectively). Commodities produced mixed returns, with both crude oil and silver posting gains (+5.7% and +1.4%, respectively) while broad-based commodities and gold were down (-0.3% and -0.1%, respectively).

exhibit 1

Fed Holds Rates Steady Amid Uncertain Outlook

The Federal Reserve held interest rates steady at the May FOMC meeting, keeping the fed funds rate in the 4.25–4.50% range. Policy members have stressed uncertainty around tariffs and the upcoming fiscal package, which cast a shadow over the economic outlook. Although inflation has eased, it remains above the Fed’s 2% target as April Core PCE (Personal Consumption Expenditures Index) printed at 2.5%. Fed Chairman Jerome Powell expressed “increased concern over the balance of risks,” emphasizing that persistent inflation combined with weakening labor and growth indicators could force difficult tradeoffs. The May FOMC minutes also revealed that officials see slower growth for 2025 and 2026 than their previous March estimate. Markets broadly expect the federal funds rate to remain at 4.25–4.50% range throughout the summer.