Wonderful World for Investors – Or is it?
Walt Disney World considers itself as “The Most Magical Place On Earth”, while Disneyland considers itself “The Happiest Place On Earth” (at least according to Disney’s marketers). Older individuals (kids at heart, at least) will remember the Wonderful World of Disney TV show. But is Disney (focusing on Disney World and/or Disneyland) really all that wonderful? While vacations to Disney tend to be magical, part of the magic is how well Disney masks the less enjoyable times at the parks. A favorite pastime for older visitors is to sit and people watch, and it is interesting to say the least, and can make you second-guess how wonderful your trip really is. Kids are screaming and crying, lines can be insufferably long, everything costs an arm and a leg, and it can be hot! Not so wonderful, right? But wait. Look again. See the smiles and laughter of young and old alike, listen to the glowing comments from those coming out of a show or off a ride, the t-shirts and souvenirs help create happy memories, and there is nothing like warm weather and sunshine! Other than when the bills for the vacation come due, most visitors to Disney rave about their vacation and look forward to their next trip! In a way, investing is similar. Putting hard earned money into a properly researched mutual fund, stock, or other investment can add stress to your financial life – especially when things out of your control cause market turmoil. So, you sit, watch, and wait, hoping you did not just fritter away a lot of money. But, just like the trip to Disney, usually, over time, those investments prove their worth and the stress you experienced in the meantime is all but forgotten. The key, like planning a vacation, is in the research, and, like not overspending on your vacation, not taking on more risk than you are comfortable with or can afford. And, then it is in not letting things out of your control overwhelm you and turn that vacation or investment into something less than it really is. Let’s dive into the markets and see how our investments have been doing, look at some of the economic variables outside of our control, and focus on what we can, and should, do.
Financial Markets
The Space Mountain ride at Disney World is the perfect metaphor for the topic of this article and for how the markets have performed this year. The ride is not really all that wild as far as rollercoasters go these days, but the fact that it takes place in the dark enhances the thrill factor. Riders are nervous and excited before getting on the ride, scream and laugh while on it, and, generally, are thrilled with the experience when they get off it. Similarly, investors are excited to put their money to work in a new investment, scream and laugh while invested, and, generally, are happy with their results (because the markets tend to go up), even if it was not the best investment ever. The markets certainly have felt like a ride on Space Mountain with ups, downs, twists, and turns with no foresight. Just when you think things are going south due to tariffs or soft economic data, the markets jerk upward and vice versa. May was one of those upward months and helped propel the large cap indices into the black year-to-date as the Dow gained 4.16% and the S&P 500 gained 6.29% during May. The equal-weighted version of the S&P 500 gained 4.35% during May and remains ahead of the market cap-weighted index on a year-to-date basis (1.34% vs. 1.06%). If that continues, it will be a boon for those investors that are more diversified beyond just the Magnificent Seven stocks. Small-cap and mid-cap stocks had a good month as the S&P 600 gained 5.23% and the S&P 400 gained 5.40% during May. Both remain well in the red, however, on a year-to-date basis. International stocks did well but did not keep up with their domestic counterparts as they gained 3.97% in May and remain well ahead of the domestic indices on a year-to-date basis. Bonds gave up some ground as the Bloomberg U.S. Aggregate Bond Index lost 0.72% in May but remains positive year-to-date.
While earnings continue to grow, many estimates are being revised lower, largely due to uncertainty over tariffs. In the first quarter of 2025, year-over-year earnings grew at a 13.3% clip, but are expected to decline to 5.0% in the second quarter. The full year forecast is 9.3% per FactSet. With the P/E ratio above 20.0 and well above both the ten-year (18.4) and five-year (19.9) averages, will the earnings growth be enough to keep the markets plowing ahead, or will investors face the next dip in the rollercoaster?
The Economy
Disney World can be a daunting place to visit if you do not do at least some planning, but from an economic standpoint, we rely on economists to provide forecasts to help us. Just like those plans for Disney World, though, the best forecasts from economists never seem to fully pan out. That is why one needs to be aware of the data, be willing to adjust as needed, but still plan. The economic data in 2025 has been a mixed bag with more variables than usual impacting investors. A new administration in Washington meant new tax, regulation, budget, and other news to go along with the usual unemployment, inflation, and interest rate variables. With all that is going on, it is encouraging to see consumer confidence beginning to bounce back in May after five straight months of decline. One data point to continue to watch is The Conference Board’s Expectations Index which measures the consumer’s short-term outlook. While the Index surged in May by 17.4 points to 72.8, it remained below the 80.0 level that typically signals a recession. The movement was strong and in the right direction, but will it continue? Given that consumer spending amounts to about two-thirds of GDP, we need the consumer to continue to spend and if economic expectations improve, they should. It would be good for the coffers at Disney World as well!
GDP (Gross Domestic Product) – Those brave enough to take a ride on the teacups at the Mad Tea Party at Disney World often end up dizzy and confused as the ride comes to an end. This may be the same feeling many have as they look at GDP estimates this year. The first quarter number currently sits (subject to revision) at a negative 0.2%, largely due to companies increasing purchases of foreign goods in anticipation of tariffs. Second quarter GDP is estimated to show stronger growth with the Atlanta Fed’s GDPNow forecasting a robust 4.6%, and that number is up from 3.8% at the end of May. The increase is likely due to a reversal in the surge of imports, as data appears to show the largest drop in the trade deficit in modern U.S. economic history. Do not get too caught up in the ride but as those riding the teacups should do, keep your eyes on the horizon and things appear calmer than the short-term data shows. In any event, the economy is doing somewhat better than expected given the uncertainty over tariffs, although the full year GDP estimates still sit around 2.0%, give or take a few tenths of a percent.
Inflation – Many rides at Disney World are relatively tame, but may come with loud music or special effects, such as on the Pirates of the Caribbean ride or songs that get caught in your head and repeat themselves over and over, like the tune from It’s a Small World. That describes inflation this year. Lots of noise over tariffs and housing yet the ride has been fairly gentle as the rate continues to inch lower. Currently, the CPI sits at 2.3% after gaining 0.2% in April, but down from 2.4% last month. Truflation sits at 1.9% as of June 3rd, which is up from the 1.45% reading at this time in May. While that number is more volatile than the government’s CPI reading, it has remained below 2.0% since the beginning of March. But like the tune from It’s a Small World, inflation has been drummed into our head for so long that even with relatively good news, we can’t seem to get away from it as an economic concern. Yes, tariffs could influence the data, but that certainly is not happening now.
Unemployment – While data for May was not available when this was being written, expectations were for a slowdown in the number of new hires. April payrolls increased by 177,000 and expectations are that May’s number will be closer to 125,000. Forecasts in recent months have tilted lower, and the actual numbers have come in above estimates. Initial jobless claims have ticked higher in recent weeks, as the number grew to 240,000 for the week ended May 24th vs. estimates of 230,000 and a week earlier reading of 226,000. While the number is slightly higher, it is certainly not a cause for concern at this point and the unemployment rate is expected to remain at 4.2%. Wisconsin’s rate ticked slightly higher to 3.3% in April while Madison’s rate ticked slightly lower to 2.6% during the month. Kind of like enjoying a frozen chocolate covered banana on a stick in a quiet corner of Disney World – peaceful in the midst of all the noise around you.
The Fed Watch
Like the Carousel of Progress ride at Disney World, the Fed is going in circles and not really doing anything at the moment. Progress (pun intended) is being made on the inflation front, the employment data remains strong, and the effects of the tariffs have not been fully felt yet, but offer the potential to raise costs and/or slow down the economy. Add it up and the Fed has been able to hold steady on the interest rate front whether they wanted to or not. Expectations for rate cuts have varied this year, but based on current data, do not be surprised to see the Fed cut rates at most just twice this year, with the first cut being pushed back possibly to September.
Tariffs
The Twilight Zone Tower of Terror ride at Disney World is a treat for fans of the old TV show The Twilight Zone, complete with host Rod Serling. It immerses you in the show and provides riders with both visual and physical thrills. The physical side is a series of elevator rides upwards with freefall drops, and is quite hair raising! Kind of like what is happening with tariffs, only with tariffs the “scary” part of the ride is the upward movement in them, and the easier part of the ride is the drop in them. Perhaps the most unsettling part of both the ride at Disney and tariffs is the unknown beforehand, as expectations can cause more anxiety than the actual ride itself. While there has been a lot of discussion about what the effects of the tariffs will be, they do seem to be causing many in corporate America to pause or change their forward guidance when it comes to earnings forecasts. As tariff rates increase, the impact has translated to lower stock prices, as future guidance is expected to be lower, and when tariff rates decrease or tariffs are paused, then future guidance is expected to be higher, or at least not as negative, and then stock prices have risen. Two things are currently true, however, and the first is that the looming deadline of July 9th is problematic for the markets, and the second is that tariffs are bringing in record amounts of cash (March saw tariff revenue at $9.6 billion, April topped $17.4 billion, and May exceeded $22 billion, with 2025 year-to-date revenue of over $92 billion). Like riding the Tower of Terror ride, the end will come and hopefully when we all get off this tariff induced thrill ride, we can smile and look forward to our next adventure.
Outlook/Summary
With summer upon us (someone needs to tell the weather forecaster we are tired of seeing 60-degree temperatures), the busy summer travel period is just beginning to ramp up. Disney World and many other vacation hot spots are hoping for a strong economy and a consumer willing and able to spend. The economic data has been supportive, and consumers are responding positively. But will the summer be an economic thrill ride akin to those at Disney with many unexpected twists and turns? My suspicion is that it will be, until tariff issues calm down and the budget process is completed in Washington. Until then, it might be wise to hold on tight! Planning ahead helps smart investors be prepared for the unexpected and be able to weather the storm, should it occur. This fits with our approach where we do not try to outguess the markets or try and time the markets, but continue to diversify. Protecting the downside first and then looking for upside performance will help investors reach their goals without getting caught up in the noise. While some clarity will come into the markets over time as the tariff picture clears up, we want to be positioned to provide steady long-term performance, no matter what happens in the economy or markets.
Should you like to discuss your portfolio or strategy or establish a new relationship, please call the Wealth Management division of Lake Ridge Bank at (608)826-3570. We look forward to speaking with you.
Market/Economic Data
As of May 31st, 2025…. Unemployment data is through April for national, Madison and Wisconsin (both preliminary); inflation data is through April:
| Index | Month Return | YTD Return | Index | Month Return | YTD Return or Current |
|---|---|---|---|---|---|
| DJIA Industrials | 4.16% | 0.08% | EAFE | 3.97% | 14.97% |
| S&P 500 | 6.29% | 1.06% | Blm US Agg Bond | -0.72% | 2.45% |
| S&P 500 Equal Weight | 4.35% | 1.34% | Inflation (CPI All-items) | 0.2% | 2.3% annualized |
| S&P 400 | 5.40% | -3.26% | U.S. Unemp. | n/a | 4.2% |
| S&P 600 | 5.23% | -8.18% | Wisconsin Unem. | n/a | 3.3% |
| NASDAQ | 9.65% | -0.74% | Madison Unemp. | n/a | 2.6% |
Thank you for your business – we look forward to speaking with you soon. (Note – this commentary used various articles from JP Morgan, Morningstar, the Wall Street Journal, Investor’s Business Daily, Northern Trust, CNNMoney.com, msn.com, Kiplingers.com, nytimes.com, Fidelity Investments, American Funds, LPL Financial and other tools as sources of information.
