Volatility returned last week due to trade tensions and a sudden geopolitical shock, even though economic data showed moderating growth and lower inflation.
Investors digested a fragile U.S.–China trade truce, a steady but slowing labor market, and an escalation in the Israel–Iran conflict that sent safe-haven assets soaring. In this commentary, we break down the key developments, from Washington to the Middle East, and discuss what they mean for markets, interest rates, and long-term investors.
U.S. – China Trade Truce on Shaky Ground
The U.S. and China resumed high-level trade talks, aiming to salvage last month’s Geneva trade truce amid mutual accusations of non-compliance. After two days of negotiations, officials in London announced a vague “framework” agreement to keep the truce alive but offered few concrete details or concessions.
Despite headlines touting a deal, market reaction was muted. The S&P 500 barely moved on the news as investors waited for clarity on whether the truce would hold. Analysts noted the announcement lacked specifics and a “real resolution” and described it as essentially an agreement to keep talking rather than a final agreement. It is likely negotiations around tariffs and tech restrictions will remain a headwind.
Labor Market: Moderate Growth Amid Demographic Shifts
New data show the U.S. job market cooled slightly in May but remains resilient. Employers added 139,000 non-farm jobs during the month, topping forecasts of 130,000. This suggests hiring is slowing from last year’s pace, reflecting businesses’ caution in the face of trade uncertainty. Also, payroll figures for March and April were revised down by 95,000 jobs combined, indicating the spring job gains were weaker than initially reported. The unemployment rate held steady at 4.2% for a third straight month, still historically low. However, that steadiness masked a concerning trend that hundreds of thousands of Americans left the labor force.
Approximately 625,000 people dropped out in May, causing the participation rate to dip to 62.4%, the lowest reading since February. This decline in workforce participation is especially pronounced among older workers, as many Americans aged 55+ continue to exit the job market (through retirement or discouragement). An aging workforce and pandemic-era retirements have kept senior participation well below pre-2020 levels, a potential structural headwind limiting labor supply.
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The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
The Consumer Price Index (CPI) is a measure of the cost of goods purchased by average U.S. household. It is calculated by the U.S. government’s Bureau of Labor Statistics.
The Producer Price Index (PPI) is an inflationary indicator published by the U.S. Bureau of Labor Statistics to evaluate wholesale price levels in the economy. PM-12172026-8081747.1.1
