Market Update

The trade policy saga continues. This week, a U.S. Court of International Trade ruled President Donald Trump’s sweeping "Liberation Day" tariffs illegal. However, within 24 hours, an Appeals Court temporarily paused that decision. Through it all, equities are heading higher as the short week closes.

This week the S&P 500 (+1.9%), Nasdaq 100 (+2.1%) and small caps (Solactive 200 +1.6%) all made solid advances. Within the U.S. large cap index, all 11 sectors are in the green, with the largest cohort, information technology (+2.8%), making the largest gain.

Internationally, equities also fared well. In Europe, the Stoxx 50 advanced 80 basis points and in Japan, the Tokyo Stock Price Index (TOPIX) increased by +2.8%.

In fixed income, yields – especially on the long end of the curve – have rallied. The 20 and 30-year yields are both lower about 10 basis points for the week, while the 10-year (4.42%) rallied about nine basis points.

Below, we delve deeper into the trade policy saga and highlight three opportunities we believe persist through the uncertainty.

Spotlight

The latest in the tariff saga. As of Thursday evening, a federal appeals court has temporarily paused a ruling against President Donald Trump’s global tariffs while considering a longer-lasting hold on the decision. The appeal follows a Wednesday evening decision from the U.S. Court of International Trade, which blocked most of President Trump’s recent tariffs, ruling that the administration wrongly invoked the International Emergency Economic Powers Act (IEEPA).

What does that mean? In short, reciprocal tariffs are still in effect for now. But the first ruling, which declared the tariffs illegal, is a reminder that these tariffs are not codified into law by Congress and uncertainty remains.

The details: Congress has the authority to impose taxes and tariffs, but it did not pass a law for President Trump’s “Liberation Day” tariffs. These tariffs were enacted under the IEEPA, which allows the president to declare a national emergency and regulate imports. However, the U.S. Court unanimously ruled that the administration misused IEEPA, halting these tariffs, including a 10% universal rate and earlier tariffs on China, Mexico and Canada. The Justice Department argued that this decision interfered with government diplomacy and Trump’s authority in foreign affairs, requesting the Federal Circuit to pause the ruling while they appealed.

We estimated that the U.S. effective tariff rate might have decreased to around 5% to 7% had the appeal not been granted. Following the Appeals Court decision, that rate reverts closer to approximately 12%.

Importantly, we think the U.S. economy can handle either rate without falling into a recession. The immediate market response seems to agree and tariffs seem to be blending into becoming one of the many things driving markets, rather than the only thing, as was the case just a month ago.

What should portfolios do as a result? Instead of focusing on uncertainty, consider leveraging our high-conviction opportunities:

1. U.S. tech: Nvidia, the dominant player in advanced semiconductor chips, emphasized continued demand in the buildout of AI infrastructure in its earnings report earlier this week. According to CEO Jensen Huang, the AI build-out is ongoing, and “global demand for Nvidia’s AI infrastructure is incredibly strong. AI inference token generation has surged tenfold in just one year, and as AI agents become mainstream, the demand for AI computing will accelerate.” This was evidenced in the U.S. government’s first-quarter gross domestic product (GDP) report, which showed business investment in computers and other information processing equipment contributed a record 1.01 percentage points to first-quarter GDP – the highest on record.

AI adoption is progressing in knowledge industries where expensive workers perform rules-based tasks. The industries using AI the most are also those with the highest free cash flow margins, which may indicate that in the early stages of adoption, AI may enhance margins rather than diminish them. Despite concerns about U.S. exceptionalism, the U.S. remains a leader in AI innovation, with U.S. companies holding four of the top five spots in the AI intelligence index, meaning that an investment in the AI theme remains an investment in U.S. tech.

2. U.S. financials: The U.S. financial system is one of the most strictly regulated sectors in the market. This seems to be for good reason, since following the 2008 financial crisis, there was a significant push for increased regulation primarily through Dodd-Frank aimed at preventing a recurrence of the crisis. However, in recent years, there has been debate that the U.S. financial system, in particular, has moved towards overregulation or regulation that doesn’t prevent bank crises (stringent capital requirements didn’t prevent Silicon Valley Bank’s collapse in 2023.)

As a result, it has been well telegraphed by the administration that deregulation, specifically lowering the Supplementary Leverage Ratio in the financial sector, is on the agenda. The Supplementary Leverage Ratio (SLR) is a leverage requirement for banks, ensuring they hold a minimum amount of equity, preferreds and debt relative to their total assets. It treats all assets equally, regardless of risk. There are discussions about excluding cash or treasuries from assets in the denominator to improve liquidity in the treasury market. This exclusion could specifically lead to a surplus in debt and preferreds. If banks bring down this surplus through lower debt or preferreds, it could be positive for existing securities. Within equities, deregulation could also reduce compliance costs and encourage mergers and acquisitions, leading to higher earnings and valuations.

3. Municipal bonds: Risks to the growth picture remain, especially if tariff roundabouts are achieved. Our preferred way to hedge portfolios against these risks are through municipal bonds. The inflation-adjusted yield in munis stands out as particularly compelling. The chart below shows the yield for the 10-year AAA callable municipal bond index and the 10-year breakeven rate (a market measure of inflation over the next 10 years). The orange bars represent the spread between the two and currently, that spread (or compensation above inflation expectations) is in the 97th percentile since 2010, meaning your estimated “real yield” on a 10-year muni is at one of the highest levels in a decade and a half.

For questions on how these opportunities can fit into your portfolio, reach out to your J.P. Morgan advisor.

All market and economic data as of 05/30/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

DISCLOSURES

The information presented is not intended to be making value judgments on the preferred outcome of any government decision or political election.

Index definitions:

The Solactive United States 2000 Index intends to track the performance of the largest 1001 to 3000 companies from the United States stock market. Constituents are selected based on company market capitalization and weighted by free float market capitalization.

The S&P 500 Equal Weight Index is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight of the index total at each quarterly rebalance.

The Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

The Magnificent Seven stocks are a group of influential companies in the U.S. stock market: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla.

The Magnificent 7 Index is an equal-dollar weighted equity benchmark consisting of a fixed basket of 7 widely-traded companies (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, Tesla) classified in the United States and representing the Communications, Consumer Discretionary and Technology sectors as defined by Bloomberg Industry Classification System (BICS).

The S&P Midcap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market.

The S&P 500 index is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Bonds are subject to interest rate risk, credit, call, liquidity and default risk of the issuer. Bond prices generally fall when interest rates rise.

Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases. 

The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

The views, opinions, estimates and strategies expressed herein constitutes the author's judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. You should carefully consider your needs and objectives before making any decisions. For additional guidance on how this information should be applied to your situation, you should consult your advisor.

All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

RISK CONSIDERATIONS

• Past performance is not indicative of future results. You may not invest directly in an index.
• The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to 'stock market risk' meaning that stock prices in general may decline over short or extended periods of time.

• Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.
• In general, the bond market is volatile and bond prices rise when interest rates fall and vice versa. Longer term securities are more prone to price fluctuation than shorter term securities. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. Dependable income is subject to the credit risk of the issuer of the bond. If an issuer defaults no future income payments will be made.
• When investing in mutual funds or exchange-traded and index funds, please consider the investment objectives, risks, charges, and expenses associated with the funds before investing. You may obtain a fund’s prospectus by contacting your investment professional. The prospectus contains information, which should be carefully read before investing.
• Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the alternative minimum tax (amt).
• International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the united states and other nations. Investments in international markets can be more volatile.
• Investments in emerging markets may not be suitable for all investors. Emerging markets involve a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the united states and other nations. Investments in emerging markets can be more volatile.
• Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
• Real estate investments trusts may be subject to a high degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.
• Investment in alternative investment strategies is speculative, often involves a greater degree of risk than traditional investments including limited liquidity and limited transparency, among other factors and should only be considered by sophisticated investors with the financial capability to accept the loss of all or part of the assets devoted to such strategies.

• Structured products involve derivatives and risks that may not be suitable for all investors. The most common risks include, but are not limited to, risk of adverse or unanticipated market developments, issuer credit quality risk, risk of lack of uniform standard pricing, risk of adverse events involving any underlying reference obligations, risk of high volatility, risk of illiquidity/little to no secondary market, and conflicts of interest. Before investing in a structured product, investors should review the accompanying offering document, prospectus or prospectus supplement to understand the actual terms and key risks associated with the each individual structured product. Any payments on a structured product are subject to the credit risk of the issuer and/or guarantor. Investors may lose their entire investment, i.e., incur an unlimited loss. The risks listed above are not complete. For a more comprehensive list of the risks involved with this particular product, please speak to your J.P. Morgan team.
• As a reminder, hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum.
• For informational purposes only -- J.P. Morgan Securities LLC does not endorse, advise on, transmit, sell or transact in any type of virtual currency. Please note: J.P. Morgan Securities LLC does not intermediate, mine, transmit, custody, store, sell, exchange, control, administer, or issue any type of virtual currency, which includes any type of digital unit used as a medium of exchange or a form of digitally stored value.

• The prices and rates of return are indicative, as they may vary over time based on market conditions.
• Additional risk considerations exist for all strategies.
• The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
• Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.