June 7, 2025 Market Update

Following a cautious start to the week, the stock market rebounded strongly on Friday, ultimately finishing the week with meaningful gains.  With earnings season winding down and no new tariff developments, investors focused on macro signals and policy commentary from the Federal Reserve.

On the macro front, the May ISM manufacturing index fell for the third consecutive month, declining 0.2% to its lowest level since last November.  And, the ISM Services Index report dropped just below the neutral 50 mark to 49.9 last month, its lowest level since June 2024.  Most significantly, yesterday’s payrolls report from the Labor Department showed moderate beat on the monthly jobs report.

In the bond market, the 10-year Treasury yield surged 12 bps to 4.5% on Friday after trending lower earlier during the week.  The resurgence likely reflects investor uncertainty over inflation and policy rates following a better-than-expected jobs report.  Recent comments by Fed officials suggested that while the Fed remains open to adjusting interest rates, it continues to take a cautious, data-dependent approach—particularly in response to mixed economic signals and ongoing policy uncertainty.

The U.S. dollar is off to one of its worst starts to a year on record, with the dollar index down more than 8% through May and trading near its lowest level since early 2022.  Several factors have contributed to the slide, including shifting interest rate expectations, concerns about the fiscal outlook, and proposed policy changes that could discourage foreign investment.  Together, these developments have sparked fresh concerns about the dollar’s long-term stability and role in the global financial system.

While a weaker dollar can help make U.S. exports more competitive, it also carries risks—particularly if it undermines the dollar’s role as the world’s primary reserve currency.  That role supports demand for U.S. assets and helps keep borrowing costs low.  Provisions like the proposed “revenge tax” on foreign investment, which is part of the President’s One Big Beautiful Bill, have added to worries that U.S. policy could accelerate this shift.  Critics argue such measures could erode confidence in U.S. markets and push capital elsewhere.

Despite these concerns, most analysts agree that the dollar’s dominance is unlikely to fade quickly.  Alternatives such as the euro or Chinese yuan face their own structural limitations, and global investors continue to see U.S. Treasurys as the safest store of value.  Still, the recent dollar weakness has served as a reminder that the global financial order depends not only on economic fundamentals, but also on confidence—and that confidence can shift.

The outlook for the dollar remains uncertain.  Much will depend on how interest rates evolve, how fiscal negotiations unfold, and how foreign governments respond to changes in U.S. tax policy.  For now, markets appear to be adjusting to a world where dollar strength can no longer be taken for granted.

That’s all for now.  Have a great weekend, and invest wisely, my friends.