Diamond Capital Management's Market Commentary
May, 2025
Gavin J. England
Vice President, Senior Portfolio Manager
Executive Summary:
- Economic Growth Slowed: Q1 GDP contracted by 0.3%, driven by a surge in imports and reduced government spending, despite strong consumer activity and rising investment.
- Labor Market Remained Strong: Nonfarm payrolls rose by 177,000 and wage growth held steady, indicating continued momentum in employment.
- Tariff-Driven Volatility: New trade tariffs introduced significant market uncertainty, contributing to higher inflation expectations, rising interest rates, and pressure on housing and equities.
Economic Snapshot – April 2025
Labor Market Strength
- Nonfarm payrolls rose by 177,000, outpacing forecasts.
- Labor force participation increased to 62.6%.
- Unemployment remained steady at 4.2%.
- Average hourly earnings grew 0.2%, helping to contain inflation pressures.
Housing Market Trends
- Inventory rose 30.6% year-over-year, the 18th straight month of growth.
- Pending home sales fell 3.2% due to rising mortgage rates.
- Treasury yields climbed as tariff announcements sparked volatility, though sentiment improved late in the month.
Markets and Investment
- The S&P 500 has recovered more than 13% since its lowest close on April 8th, reflecting cautious optimism.
Tariff Impact & Market Volatility
New tariffs announced on April 2 (“Liberation Day”) introduced uncertainty. While aimed at supporting U.S. manufacturing and leveling trade imbalances, tariffs typically raise costs for imported goods—leading to inflation and potential supply chain disruptions. In response to the heightened volatility and elevated risks for an economic contraction, we are maintaining a slight underweight to equities relative to bonds and cash in blended portfolios.
Looking Ahead
Despite Q1's GDP dip, core fundamentals remain solid. Strong consumer spending and robust job growth are expected to support the economy into May. However, rising rates and ongoing trade policy uncertainty may contribute to continued market volatility, particularly in housing and equities.
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