The Market Is Up. But Should You Be Nervous?
If May taught investors anything, it’s that a market can climb even with turbulence rumbling underneath. With the S&P 500 chalking up its best month since November 2023, equities stormed into June flirting once again with record territory. But like a high-wire act with no safety net, the feat was as much about balance as bravado.
Markets dodged threats that could have made a mess of any normal quarter: tit-for-tat tariffs, surprise court rulings, and a job market flashing mixed signals. Yet somehow, optimism prevailed. Investors appear to be betting that tariffs will cap out at “manageable” levels and that consumer spending hasn’t yet given up the ghost.
June begins with hope. However, behind that, many questions still linger.
This Week I Learned…
When Consumers Get Cautious, Markets Get Creative
It turns out 2025’s stealthiest economic force isn’t tariffs or even inflation, it’s consumer restraint. This week, I learned about “revenge saving”, a behavioral Shift from years of pandemic-era splurging to a more cautious approach to stockpiling cash.
Here’s why it matters. April’s personal savings rate spiked to 4.9%, compared to just 3.9% in November. That’s not just thrift; that’s defense. Americans are reacting to looming price hikes from tariffs and a cooling job market by pulling back on spending, a move that’s beginning to ripple into earnings forecasts, supply chain behavior, and equity valuations.
“Revenge saving” is a twist on “revenge spending”, that short-lived YOLO shopping spree right after lockdowns. But unlike its predecessor, this trend is sticky. Consumers, especially those who rushed out to buy before the tariffs took effect, are now retreating financially.
For investors, this could translate into softer corporate revenues, more defensive stock picks, and likely a bigger appetite for bonds with decent yields. Knowing where the money isn’t going can be just as valuable as knowing where it is.
The Fun Corner
High Valuations, Higher Nerves
Here’s a little quiz to lighten the mood:
What’s the difference between a market with a P/E ratio of 21.3 and one at 18.4?
Answer: About three points of investor denial.
That’s not just a punchline, it’s the actual spread between today’s S&P 500 forward P/E and its 10-year average. Investors are pricing in a soft landing, tariff containment, and Goldilocks inflation. That’s a lot of optimism baked into a ratio.
But don’t worry. If valuations stretch much further, they’ll qualify for Olympic gymnastics. Just remember: the last time we saw valuations hover this high, the Fed was still unsure about lowering rates, not hiking them.
One bold metric says more about market nerves than a dozen headlines.
Tariffs, Tension, and the Tenuous Rebound
May delivered a lesson in market resilience, or collective denial. Despite headline hazards like fresh tariffs, White House whiplash, and a murky labor outlook, the S&P 500 posted its strongest gains since late 2023, closing out the month within 4% of its all-time high.
At face value, that sounds bullish. But scratch the surface and you’ll find a volatile undercurrent. The market’s May strength came not from certainty, but from hope. Investors are betting that tariffs will stabilize at levels businesses can tolerate: roughly 10% globally and 30% for China. That’s not exactly free trade, but it’s not a trade war either.
Yet even those assumptions are shaky. Court rulings and presidential reversals on tariffs, some of which were reversed within 24 hours, left policy more like a yo-yo than a roadmap. Meanwhile, households are hedging their bets. Savings rose sharply in April, consumer spending pulled forward, and job anxiety is creeping in.
Market strategists are divided. Some say inflation fears are easing. Others warn that a strong jobs report this Friday could reignite those worries and narrow the path for the Fed to cut rates. The bond market is already pricing in caution, with longer-term yields nudging higher.
This rally may be built less on fundamentals and more on the absence of disaster. However, unless investors gain firmer footing on trade policy and economic growth, June could be more of a grind than a gain.
The Last Say
Relief Rallies and Reality Checks
This week’s market narrative has been less about triumph than about treading water, and doing it stylishly. Stocks moved higher on the belief that tariff disruptions wouldn’t escalate, even as that belief got tested at nearly every turn. At the same time, investors are confronting a more cautious consumer and a jobs market that’s becoming harder to read.
This isn’t optimism. It’s a strategic suspension of disbelief.
If tariffs indeed level off and inflation remains tame, the rebound makes sense. However, if another policy whiplash occurs or job numbers surprise to the upside, markets could snap out of their trance quickly. Investors should closely monitor the dollar. It’s dropped 8.3% this year. Any further slide could mean capital exits the U.S. just when sentiment needs it most.
In the meantime, earnings season is nearly done, the P/E ratio is stretched, and expectations are tightrope-thin. If markets continue to price in “manageable chaos,” they may do well to prepare for less manageable outcomes.
As June unfolds, expect more policy signals, more economic data, and likely, more confusion. Stay alert. Because confidence, just like tariffs, can change overnight.
