Baker Market Update
2025-05-09

Round 2 of the NBA Conference Semifinals began this past Sunday, with the Cleveland Cavaliers hosting the Indiana Pacers. The Pacers pulled off an upset, winning 121–112 on the road. Closer to home, The Baker Group’s beloved hometown team, the Oklahoma City Thunder, hosted the Denver Nuggets for Games 1 and 2 on May 5th and 7th. The series has been a tale of two outcomes: Game 1 ended in a narrow 2-point loss for the Thunder, but they bounced back in dominant fashion in Game 2, defeating the Nuggets by an overwhelming 43 points. Much like Thunder’s dramatic turnaround, financial market sentiment has swung sharply, ranging from volatility and uncertainty to renewed optimism. Both storylines serve as a reminder that momentum can shift quickly, whether on the court or in the markets.

On Monday, data regarding the trade balance for March came in lower than economists had anticipated. Exports showed no momentum, remaining flat at $278.5 billion and falling short of the projected $280.5 billion, a sign of softening global demand. In contrast, imports surged unexpectedly, rising to a striking $419 billion from $401.1 billion in February, well above the forecasted $417.6 billion, highlighting a growing domestic appetite for foreign goods, potentially driven by efforts to get ahead of looming tariffs.

Thursday’s news of a new trade deal with the United Kingdom brought partial relief from escalating geopolitical tensions sparked by the recent announcement of sweeping tariffs from the Trump administration. A few key points: the new deal eliminates tariffs on British steel and aluminum, reduces tariffs on British car imports from 27.5% to 10% (up to 100,000 vehicles annually), and lowers UK tariffs on U.S. beef and ethanol. Ironically, despite the Trump administration’s broad-based tariffs aimed at shrinking the trade deficit, the new deal is with the UK—a nation with which the U.S. already holds a trade surplus.

This week, members of the Federal Open Market Committee (FOMC) gathered to review economic conditions and discuss potential changes to monetary policy. Unsurprisingly, the Federal Funds Rate, the Federal Reserve’s primary tool for implementing monetary policy, was left unchanged, with the Committee stating that any future adjustments to the target rate would require a careful assessment of incoming data, the evolving economic outlook, and the balance of risks. One slight change in the FOMC statement raised eyebrows among market participants, highlighting increased apprehension about the economic outlook. Despite these concerns, reductions in the Federal Reserve’s holdings of U.S. Treasuries and agency debt will continue at the current pace.

The 10-Year Treasury Note auction on Tuesday, May 6, showed strong demand from both domestic and foreign investors, helping to ease concerns about declining market interest. The $42 billion in 10-year supply was awarded at a 4.342% yield, 1.2 basis points below the when-issued yield, indicating the results exceeded investor expectations. One indication of strong demand: non-mandatory bidders received 91.1% of the total 10-year notes sold, the highest share since February 2023. Although investors were recently concerned that foreign appetite for Treasurys might falter due to political tensions, a series of strong auctions, including this latest 10-year sale, has helped calm those fears.

Next week brings key inflation data for both consumers and producers, indicators assessing the health of the manufacturing sector, and metrics regarding the strength of the real estate market.

Have a great weekend, everyone!