The end of the easy US stock bet has been good to contrarians

Stocks

Economic

Summary:

After years of easy gains from U.S. megacap stocks, market volatility and trade tensions have revived interest in diversification. Contrarian, global, and alternative strategies are outperforming as investor confidence in U.S. dominance wanes.

On Wall Street, it’s been years since anyone had to think very hard to make money. Buy the largest US stocks, ignore everything else and watch your portfolio soar. Investing was reduced to one-click simplicity.

Then life got more complicated. President Donald Trump’s sudden tariff escalation in April offered a glimpse of what a world without that certainty might look like. Confidence wavered—not just in megacap resilience, but in American economic exceptionalism and Trump’s market-friendly reputation. But after a sharp market decline, some of the panic subsided.

The president backed away from some of his most dramatic tariff plans, and major US equity indexes bounced back. On May 28, a US trade court said many of Trump’s tariffs were illegal, with the administration appealing the decision. Yet for many, the market and political mayhem highlighted the increasing fragility of the one-way buy-America trade.

You can still see the shadows of all that doubt in the lower value of the dollar, in Moody’s Ratings’ (MCO) recent decision to downgrade America’s debt, and in the steady drumbeat of money finding its way to anything that isn’t just another bet on US stocks.

The end of the easy US stock bet has been good to contrarians_1

A motley crew of finance professionals long dismissed as having complex and cautious strategies have been having their moment. With megacap valuations still looking stretched, these money managers are pitching a slew of allocation ideas to investors newly receptive to the age-old virtue of diversification. “I am looking forward to this being a world again where prices matter,” says Ben Inker, the co-head of asset allocation at Grantham Mayo Van Otterloo, a money manager known for bull-market skepticism as well as its dedication to value investing.

His GMO International Developed Equity Allocation Fund is up about 20% this year—its biggest outperformance over the S&P 500 (^GSPC) since the strategy’s 2006 inception. The fund has about half its assets in Europe and almost 30% in Japan.

Meb Faber, too, has been waiting patiently for this. The founder of Cambria Investment Management LP has been calling the end of the US exceptionalism trade for years. Before 2025 his model, which spread money across regions and assets, had trailed the S&P 500 in 14 out of 16 years. Now people are seeing the virtues of contrarian strategies. “Nobody is interested in talking about or wanting any of these investments, and all of a sudden you just blink, and the next thing you know, they’re outperforming,” Faber says.

Nothing lasts forever, Faber says. He points the 1980s, when international markets, Japan’s in particular, left American equities in the dust. That episode foreshadowed the Nikkei 225’s (^N225) two decades of woe.

Fund flows highlight the shift away from the go-long-US trade. International equities are attracting money in droves. Exchange-traded funds holding value stocks, which typically snub the top-heavy Magnificent Seven tech stocks, have already seen $30 billion in inflows this year.

Hedge funds attracted about $14 billion in cash this year through April, according to data compiled by fund administrator Citco. And quantitatively driven diversification strategies—with names like risk parity and factor investing that seem designed to resist easy marketing—are gaining fresh attention.

Also on the hot list: buffer funds, a breed of ETF that employs stock options to limit a portfolio’s downside while capping the upside. And there’s been a revival of once-dormant techniques such as portable alpha, a way of using borrowed money to try to sprinkle some idiosyncratic bets on top of exposure to the market index. “There’s not as big an opportunity cost in introducing diversification and having to sacrifice that core stock exposure,” says Corey Hoffstein, chief investment officer of quantitative money manager Newfound Research, speaking of portable alpha.

This year “has been about making diversification look great again,” says Dan Villalon, principal at AQR Capital Management LLC, a Greenwich, Connecticut-based manager of quant and hedge fund strategies. “We see it in every dimension: We see in equity markets. We see it in asset classes. We see it in alternative strategies.” AQR has long warned that US dominance of equity markets is at risk and that investors are underdiversified. Of course, the push to spread out risks comes with big pitfalls. In an age of artificial intelligence advances, there’s a constant fear of missing out on another Big Tech rally.

Already, chipmaker Nvidia Corp. (NVDA)—a key member of the Mag 7—has roared back from its April depths, notching a near-30% return over the past month. Moreover, the leverage used in many market-defying strategies can easily backfire. And many of these techniques layer on cost and are poorly understood by clients. Villalon, for example, has been an outspoken critic of buffer funds.

AQR has published research arguing that a simple mix of stocks and safe Treasury bills is a better bet for those seeking downside protection.Christine Benz, director of personal finance and retirement planning at the research firm Morningstar Inc., likewise argues that most individual investors can do just fine with a low-cost, do-it-yourself version of diversification. Just own a broad of mix of different assets.

“I would argue that the basic principles of asset allocation are delivering beautifully this year—the vanilla strategy of holding cash and bonds to cushion against equity losses has been a winning one. Diversifying equity exposure globally has also helped.”

And there’s still a large chorus warning against giving up on stocks in the world’s most dynamic economy. “With ever more complex investment products becoming available to retail investors, history keeps proving that a simple, diversified portfolio of large-cap stocks wins out,” says Liz Miller, president of Summit Place Financial Advisors LLC. “Alternative and structured investments can appeal to investors’ fears of market volatility, but long-term growth comes from investing appropriately in equities and staying committed throughout market turmoil.”

Still, investors seem to have widened their view of the range of outcomes. For Vineer Bhansali, CIO and founder of LongTail Alpha LLC, it’s been the busiest time since the onset of the pandemic. LongTail’s name refers to the rare but extreme events that can occur at both ends of the bell curve of possible market outcomes; the firm sells strategies that hedge the really bad ones but often suffer losses in a bull market.

Bhansali says clients are calling all day with concerns about high exposure to US stocks and market patterns breaking down. Recently, a $24 billion Australian pension fund allocated to the strategies. “Everybody has a lot of US assets,” Bhansali says. “Trade, the reason this whole thing is happening, is a global phenomenon. Everybody gets pulled into it. Everybody’s concerned about what happens to their old global asset allocation.”

source : finance.yahoo

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Stocks

Megacap technology and growth stocks have retaken U.S. market leadership in recent weeks, but investors say that factors are in place that could allow a broader group of stocks to outperform for the rest of the year.

After technology shares led by a small group of stocks known as the "Magnificent Seven" drove equity indexes higher in 2023 and 2024, much of Wall Street expected a broader swath of stocks to do better this year.

After stumbling in early 2025, the Magnificent Seven have stormed back amid an overall rebound in equities fueled by easing trade worries. The group, which includes Microsoft (MSFT.O), Meta Platforms (META.O), and Apple (AAPL.O),has accounted for over 40% of the S&P 500's (.SPX) total return since the close on April 8, when stocks began to recover from U.S. President Donald Trump's jarring April 2 "Liberation Day" tariff declaration, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

The tech trade got a fresh boost on Thursday as shares of Nvidia (NVDA.O), another Mag 7 company, gained 3% after the AI chipmaker's sales beat quarterly expectations.

But investors say more enticing valuations and an improving earnings backdrop are poised to allow strong performance for a broader group of stocks, as long as the economy avoids significant hiccups in the coming months.

Coming into the year, "we were pretty poised to see a broadening of market participation," said Michael Reynolds, vice president of investment strategy at Glenmede.

"We think that's a story that's still relatively intact, that the rest of the market's earnings growth can actually be relatively competitive to some of these megacap tech companies and be supportive of returns through the rest of this year."

The U.S. market has shown signs of broadening its gains. The top-performing S&P 500 sectors so far this year have been industrials (.SPLRCI), consumer staples (.SPLRCS), utilities (.SPLRCU), opens new tab and financials (.SPSY).

After lagging badly the prior two years, the equal-weight version of the S&P 500 (.SPX)-- which represents performance of the average index stock -- has performed more in line so far in 2025 with the standard S&P 500, which is market-cap weighted so the larger stocks influence it more.

More recently, however, the Mag 7 have outperformed as they did in 2023 and 2024 when they accounted for well over half the S&P 500'S 58% two-year return.

While the S&P 500 has gained over 18% from its April lows, an ETF covering the Magnificent Seven (MAGS.Z) -- which also includes Amazon (AMZN.O), Alphabet (GOOGL.O), opens new tab and Tesla (TSLA.O), -- has surged more than 30%.

Investors see US stocks rally broadening, even as 'Magnificent Seven' rebound_1

S&P 500 vs MAGS ETF in 2025

A strong first-quarter earnings season in general helped lift the stocks, which as a group had sold off particularly sharply earlier in the year over worries about the artificial intelligence business landscape, and economic fallout from Trump's sweeping tariffs.

Indeed, even as Nvidia reported another blockbuster quarter, the maker of AI chips did warn of more risks to its business emerging in the technology conflict between the U.S. and China.

With the rebound, valuations for the Magnificent Seven have also become more elevated. The group's median price-to-earnings ratio as of Wednesday was around 28 times earnings estimates for the next 12 months, after falling as low as 22.2 in April, according to LSEG Datatream. The S&P 500, including the Magnificent Seven, was at a P/E of 21.4.

Michael O'Rourke, chief market strategist at JonesTrading, said the megacap stocks have benefited recently as investors have been "chasing exposure" to equities on better-than-expected tariff news by buying funds covering indexes such as the S&P 500, in which the stocks have heavy weightings, or by buying the stocks themselves.

"It's easier to just go for the index or go for the larger names in the index because they're liquid and you can quickly add exposure that way," O'Rourke said.

However, he said, there are a lot of other large-cap names trading at "much more attractive levels."

"The headline-driven trading has to subside," he said. "When the market is less focused on trade and geopolitics, that will allow broadening to re-emerge."

To catch up, the rest of the S&P 500 may have to close the earnings growth gap with the Mag 7.

In 2024, Magnificent Seven earnings grew 36.9% against a 7% increase for the rest of the S&P 500, according to Tajinder Dhillon, senior research analyst at LSEG. This year, the gap is expected to narrow, with Mag-7 earnings rising 15.9% against a 6.5% rise for the rest of the index.

"All the earnings growth was in those big Mag-7 names, and we have started to see a broadening in earnings growth," said Chris Fasciano, chief market strategist at Commonwealth Financial Network.

Commonwealth is recommending investors diversify their equity exposure, including to the financials and industrials sectors, as well as to mid-cap stocks, Fasciano said.

Still, Mag 7 stocks could retain their popularity if Wall Street grows concerned about a significant economic slowdown, having become somewhat of a defensive play for investors in recent years. Their businesses are expected to be relatively resilient to the broader growth environment while investors are also drawn to their general financial strength.

Indeed, stable economic growth will be especially critical for economically sensitive areas such as industrials, materials and financial stocks.

"Better growth is going to be the trigger for a more sustainable broadening out and participation," said Garrett Melson, portfolio strategist at Natixis Investment Managers.

source :reuters

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Warren Takunda

Economic

U.S. consumer spending increased marginally in April, with households opting to boost savings amid mounting economic uncertainty because of a constantly changing tariff landscape.

The report from the Commerce Department on Friday suggested the economy struggled to rebound early in the second quarter after contracting in the January-March quarter for the first time in three years. Gross domestic product could, however, get a lift from a sharp contraction in the goods trade deficit last month as the front-running of imports to beat tariffs faded.

Inflation was muted in April, with a measure of underlying price pressures posting its smallest annual increase in four years. A U.S. trade court on Wednesday blocked most of President Donald Trump's import duties from going into effect in a sweeping ruling that the president overstepped his authority. They were temporarily reinstated by a federal appeals court on Thursday, adding another layer of uncertainty over the economy's outlook.

"Consumers appeared to be saving for a rainy day last month as the Liberation Day tariff shock shook consumer confidence," said Scott Anderson, chief U.S. economist at BMO Capital Markets.

Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.2% last month after an unrevised 0.7% jump in March, the Commerce Department's Bureau of Economic Analysis said. That was in line with economists' expectations.

Spending was supported by outlays on services, mostly housing and utilities, healthcare as well as restaurants, hotels and motel stays. But goods spending softened amid cutbacks on purchases of motor vehicles and parts, clothing and footwear as well as recreational goods and vehicles.

Pre-emptive buying of goods ahead of Trump's sweeping import tariffs helped to push spending higher in the prior month. Most of the tariffs have been implemented though higher duties on goods have been delayed until July.

Duties on Chinese imports have been slashed to 30% from 145% until mid-August. Economists have argued that Trump's aggressive trade policy will sharply slow economic growth this year and boost inflation, concerns echoed by Federal Reserve officials.

Minutes of the U.S. central bank's May 6-7 meeting published on Wednesday noted "participants judged that downside risks to employment and economic activity and upside risks to inflation had risen, primarily reflecting the potential effects of tariff increases." The U.S. central bank has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December.

The economy contracted at a 0.2% annualized rate in the first quarter after growing at a 2.4% pace in the October-December quarter, largely depressed by a flood of imports.

With most of the tariffs in place, imports are collapsing, helping to compress the goods trade deficit by 46.0% to $87.6 billion in April, a separate report from the Commerce Department's Census Bureau showed.

Goods imports decreased $68.4 billion to $276.1 billion. Exports of goods increased $6.3 billion to $188.5 billion.

U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury yields edged higher.

SAVINGS JUMP

But given the on-again and off-again nature of the tariffs, the front-running of imports is probably not over and neither is the gloom over the economy likely to lift soon, evident in the deterioration in consumer sentiment.

That is prompting consumers to build savings. The saving rate jumped to a one-year high of 4.9% from 4.3% in March.

Inflation was benign in April, with retailers likely still selling inventory accumulated before the tariffs. The Personal Consumption Expenditures (PCE) Price Index rose 0.1% last month after being unchanged in March, the BEA said.

US Consumer Spending Slows in April; Inflation Benign_1

A column chart titled "Monthly change in US Personal Consumption Expenditures Price Index" that tracks the metric over the last year.

In the 12 months through April, PCE prices increased 2.1% after advancing 2.3% in March.

Stripping out the volatile food and energy components, the PCE price index gained 0.1% last month following an upwardly revised 0.1% gain in March. The so-called core PCE inflation was previously reported to have been unchanged in March.

US Consumer Spending Slows in April; Inflation Benign_2

A column chart titled "Monthly change in core US Personal Consumption Expenditures Price Index" that tracks the metric over the last year.

In the 12 months through April, core inflation rose 2.5%. That was the smallest advance since March 2021 and followed a 2.7% increase in March. The Fed tracks the PCE price measures for its 2% inflation target. Economists expect inflation to accelerate this year as tariffs raise goods prices.

US Consumer Spending Slows in April; Inflation Benign_3

A line chart titled "Annual change in US Personal Consumption Expenditures Price Index" that compares two key inflation metrics over the past five years.

Consumers' one-year inflation expectations have soared. The Fed minutes on Wednesday showed some policymakers assessed that the surge in short-term inflation expectations "could make firms more willing to raise prices." They also saw a risk that longer-term inflation expectations "could drift upward, which could put additional upward pressure on inflation."

Source: Reuters

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Adam

Economic

Forex

Tokyo core inflation higher than expected at 3.6%

Tokyo core CPI climbed to 3.6% y/y in May, up from 3.4% in April and above the market estimate of 3.5%. This marked the highest level since Jan. 2025. Tokyo core inflation is viewed as the leading indicator of nationwide inflation trends and is closely monitored by the Bank of Japan. Tokyo core CPI, which excludes fresh food, was driven higher due to due higher non-fresh food prices, particularly rice which has soared 93% over the past year.

The jump in core CPI bolsters the case for a BoJ rate hike. The markets had anticipated a rate hike in October but today's strong inflation report could accelerate the timing of the next rate hike. At the same time, the uncertainty caused by US trade policy may force the BoJ to delay any rate hikes until the impact of US tariffs on Japan's economy becomes clearer.

Federal Appeals Court reinstates tariffs

US President Trump's controversial tariffs have sent the financial markets on wild swings. Now, US courts are weighing in on whether Trump exceeded his authority when he imposed the tariffs. A trade court panel ruled this week that most of the tariffs were illegal but on Thursday, an appeals court granted the Trump administration a temporary pause, keeping the tariffs in effect.

The legal fight over the tariffs has just begun and could go all the way to the US Supreme Court. In the meantime, the legal challenge has blown a hole in Trump's tariff policy and is causing even more uncertainty in the financial markets.

USD/JPY Technical

USD/JPY has pushed below support at 143.98 and 143.79. Below, there is weak support at 143.54 followed by 143.35

The next resistance lines are 144.23 and 144.42

Japan core inflation hits two-year high, yen gains ground _1

USDJPY 4-Hour Chart, May 30, 2025

source : marketpulse

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Damon

Central Bank

Economic

Two weeks after the preliminary UMichigan survey found that "Women, Democrats, & Low-Income Americans Are Out Of Their TDS-Addled Minds", and one week after Goldman finally called out the idiocy of the UMich survey, slamming its "partisanship" and the "sample design break starting from June 2024"...

UMich Survey Shows Improvement Despite TDS Still Among Democrat Respondents_1

... not to mention that it has been chronically wrong, warning that "Michigan inflation expectations have already risen even more than in 2022 and this time long-term expectations have risen sharply too, all before tariffs have even meaningfully boosted consumer prices" while "technicalities have exaggerated the increase in the Michigan [inflation] survey, as other survey measures and market-implied inflation compensation have not risen much at horizons beyond the next year", moments ago the final UMich survey for the month of May saw sharp revisions to the prelim prints, to wit:

The headline Sentiment print was revised higher from 50.8 - which was the lowest since May 1980 - to 52.2, and above the median estimate of 51.5
The Current Conditions print was revised from 57.6 to 58.9, and above the median estimate of 58.0
The Expectations print was revised from 46.5 to 47.9, and above the median estimate of 46.5

And visually:

UMich Survey Shows Improvement Despite TDS Still Among Democrat Respondents_2

“Sentiment had ebbed at the preliminary reading for May but turned a corner in the latter half of the month following the temporary pause on some tariffs on China goods,” Joanne Hsu, director of the survey, said in a statement.

Still, “consumers see the outlook for the economy as no worse than last month, but they remained quite worried about the future,” Hsu said.

There was more moderation also in the survey's expectations for inflation: consumers (read democrats) were more sanguine about the longer-term inflation outlook. They saw costs rising by 6.6% over the next year, down from 7.3% in the prelim print, and below estimates of 7.1%. Same thing with long-term (5-10 year) inflation expectations, which dropped to 4.2% down from 4.6% in the prelim print, and down from 4.4% in the prior month, and also well below estimates of 4.6%. More importantly, it was the first drop this year.

UMich Survey Shows Improvement Despite TDS Still Among Democrat Respondents_3

Yet even with the decline, the staggering gap between democrat and republican inflation expectations remains: Democrats still expect an idiotic 9.4% surge in inflation in the coming year (down from 9.6% in the prelim print), while Republicans realize that demand destruction is coming and see inflation rising by only 1% in the coming year (down from 1.2% in the prelim print).

UMich Survey Shows Improvement Despite TDS Still Among Democrat Respondents_4

That said, Democrats still have to temper their TDS aggressively: spot the odd one out - UMich Democrats, The NY Fed, or The Market

UMich Survey Shows Improvement Despite TDS Still Among Democrat Respondents_5

One more for fun - comparing Democrats view of the inflationary outlook to the 'hard' inflationary data

UMich Survey Shows Improvement Despite TDS Still Among Democrat Respondents_6

Earlier on Friday, the government reported continued declines in the Fed's preferred inflation metric, the core PCE with the supercore print coming at the lowest level since covid. Sooner or later, the market will learn that the UMich index was nothing more than a propaganda tool used by its overpaid marxist professors such as Justin Wolfers, meant to hammer stocks but really just offering a constant opportunity for dip buyers, and sure enough, futures are once again at session highs.

Source: Zero Hedge

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Adam

Commodity

Oil Prices Forecast Constrained by Resistance Levels and Weak Catalysts

Light crude oil futures were slightly lower in Friday trade, with upside momentum capped by technical resistance at the 50-day moving average of $62.40 and a nearby short-term pivot at $62.59. Buyers appear reluctant to commit above these levels without a clear catalyst. The market’s current consolidation phase, lasting six sessions, signals caution as traders await the outcome of the OPEC+ meeting scheduled for this weekend.

Should prices break through this resistance cluster, a swift test of the $64.19–$64.40 range becomes likely. Beyond that, the 200-day moving average at $66.66 would come into play as the next bullish target. On the downside, $59.51 serves as key support. This tight technical structure points to a market bracing for news that could tip sentiment decisively.

OPEC+ Output Hike Anticipated but Priced In

Brent and WTI contracts were on track for a second consecutive weekly loss, each down approximately 0.5%, as traders priced in the likelihood of another OPEC+ output hike. Market sentiment was dampened by media reports suggesting several delegates had already backed a production boost, potentially exceeding the prior 411,000 bpd increases seen at the last two meetings.

Commerzbank analysts noted that this anticipation has likely dulled any significant impact the official announcement might have. JPMorgan analysts added that a widening global surplus of 2.2 million bpd could force prices lower to trigger a supply response and rebalance the market. The OPEC+ gathering on Saturday—limited to eight key member states—may confirm these expectations or introduce an unexpected twist that could jolt prices.

U.S. Tariffs Inject Further Uncertainty Into Crude Markets

Adding to bearish pressure, oil prices dropped more than 1% on Thursday following a surprise legal development that kept sweeping U.S. tariffs in place. A federal appeals court temporarily reinstated the duties after they were blocked just a day earlier. These tariffs, dubbed “Liberation Day” measures by the Trump administration, have contributed to a more than 10% decline in oil prices since their announcement in early April.

Analysts caution that continued legal wrangling around U.S. trade policy will sustain an environment of uncertainty for crude demand forecasts. For now, the legal back-and-forth appears to be capping risk appetite among oil bulls.

Market Outlook: Bearish Bias Until OPEC+ Clarity Emerges

With technical resistance firmly in place, a growing global supply surplus, and unresolved U.S. trade tensions, the short-term outlook for oil remains bearish. Traders are likely to stay on the sidelines until OPEC+ delivers clear guidance on production policy. Unless the group surprises with a more moderate hike or signals restraint, further downside pressure is expected.

Source: fxempire

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Warren Takunda

Economic

Inflation data shouldn’t deter us from rate cuts, says Bank policymaker

Alan Taylor voted for a 0.5-point cut last month and feels recent economic figures are led by one-off factors

A member of the Bank of England’s interest rate-setting committee has warned that higher-than-expected inflation and growth figures should not distract policymakers from continuing to cut borrowing costs.

Alan Taylor, who was one of two monetary policy committee members to call for a bigger 0.5 percentage point cut last month, said that while he was not going to forecast his future votes, he felt that recent economic data was being led by one-off factors.

“I’m not going to pre-emptively announce my vote, but I think I indicated in my dissent that I thought we needed to be on a lower [monetary] policy path,” Taylor told the Financial Times in an interview.

The latest figures show UK inflation jumped by more than expected in April, to 3.5% from 2.6% in March, almost a percentage point higher than the Bank of England’s 2% target.

However, much of that rise reflected a jump in water bills, energy costs and council tax. “[Higher inflation] is not coming from demand and supply pressures; for the most part, it’s coming out of one-time tax and administered price changes,” Taylor said, adding that energy prices had otherwise been trending downwards.

“[The BoE] forecast path is saying there is going to be an inflation hump and then it’s going to go away,” he said

While the UK economy grew 0.7% in the first quarter, marking the fastest rise in a year, economists have said it was largely the result of stronger levels of business investment as companies rushed to beat Donald Trump’s tariffs. Taylor said he was still “pretty concerned” about the outlook.

Taylor was among two members of the nine-strong MPC who voted for a bigger 0.5% percentage point cut to interest rates earlier this month, which were ultimately cut by a quarter of a percentage point to 4.25%. Two members voted to hold at 4.5%.

His concerns about the outlook are due to “more risk piling up on the downside scenario because of global developments”, he said. Taylor said that includes ripple effects from the US president’s trade war.

“A trade war is going to be negative for growth,” Taylor said, adding that the tariff regime “is going to be a drag on growth for both the frictional reason and the uncertainty reason”. While the Labour government has hailed three trade pacts struck with the EU, India and US in recent weeks, Taylor said the UK was “not getting back to where we were before”.

He said: “These other things are perhaps welcome in their effects in certain sectors, but I think we need to keep our eye on the big shocks. We got a massive change in trade policy; we have a lot of uncertainty: I would focus on that as the big story.”