Portfolio Manager Commentary

May 1, 2025

Economic Outlook

The U.S. Leading Economic Index was 100.5 in March, down from February’s level, but near a neutral reading of 100. The ISM Manufacturing Index fell to 48.7 in April from 49.0 in March. U.S. Industrial Production increased 1.3% year-over-year in March, with utilities sector production growing at a 4.4% rate. The University of Michigan Consumer Sentiment Index dropped to 52.2 in April, reflecting the fourth consecutive monthly decline. The 5-Year Breakeven Inflation Rate is currently at 2.29%, indicating moderate inflation expectations. Capacity Utilization in the U.S. manufacturing sector increased to 77.8% in March, marking the fourth consecutive monthly increase. Average hourly earnings rose 3.8% year-over-year in April, unchanged from the prior month. The NAHB Housing Market Index increased to 40 April, signaling a challenging environment for home builders and increasing levels of supply. The average interest rate for a 30-year fixed-rate mortgage is approximately 6.76%, near the midpoint over the past 6 months.

Fixed Income

The current federal funds target rate is 4.25-4.50%. The 2-year yield is currently 3.56%, 58 basis points below the 10-year yield of 4.14%. In recent weeks, the risk of a global trade war sent U.S. Treasury rates sharply higher. However, since mid-April, yields for short, intermediate, and long-term bonds have all fallen moderately. Notably, the 2-year fell nearly 50 bps from a peak of 4.04% on April 9 to a low this week of 3.55%. Given recent data prints indicating a resilient labor market and relatively low levels of inflation, the Federal Open Market Committee has been slow to cut rates further during this cycle. The next FOMC meeting is scheduled for May 6-7, 2025.

Yield Curve

Current Generic Bond Yields

Equity

Equity markets experienced a highly volatile month as the S&P 500 index fell nearly 14% from April 1 to April 7. Since then, the index returned over 17% and currently sits near where it began the month. While U.S. stocks have largely recouped the outsized losses in April, the S&P 500 is still down nearly 4% on the year. From a valuation perspective, the S&P 500 has a trailing P/E ratio of 24.42. This is above the 10-year average of 21.54. With earnings season underway, investors will be watching for guidance from the largest U.S. companies as they navigate high levels of uncertainty related to tariff impacts.

In 2025, the best performing sectors have been Consumer Staples (+4.88%), Utilities (+4.48%), and Real Estate (+1.50%). The worst performing sectors have been Consumer Discretionary (-13.41%), Information Technology (-9.45%), and Energy (-5.36%). On a total return basis, the Russell 1000 Growth Index has returned -7.26% year to date, while the Russell 1000 Value Index has fallen -1.11% over the same period.