CWS Market Review – June 3, 2025

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

The Best May Since 1990

On Friday, the S&P 500 closed out its best May in 35 years. It was also the second-best May since 1948.

The old Wall Street adage that we’re to “sell in May and go away” isn’t working this year. Not only was last month the best May, but it was also the best month since November 2023.

For the month, the S&P 500 gained 6.15%. If we include dividends, then the market was up 6.29%. For the year, the S&P 500 is up 0.51%, and with dividends, it is up 1.06%.

After suffering a major scare earlier this year, it’s amazing that we’re not far from new all-time highs. For the last two weeks, the S&P 500 mostly traded within a narrow range. In thirteen of the last 15 trading sessions, the S&P 500 has closed within 1% of 5,900.

We’ve had some disappointing economic news lately. On Monday, we got the ISM Manufacturing Index. I look forward to this report for a few reasons. For one, it’s usually reported on the first business day of the month. So many econ stats lag far behind what they’re supposed to be reflecting.

Also, the ISM is simple. They go to several companies and ask the purchasing managers if they’ve been buying more, buying less or buying the same. That’s it.

An ISM report above 50 means that the factory sector of the economy is growing, and below 50 means it’s shrinking. The ISM for May came in at 48.5. That’s down 0.2 from April. That’s negative but not by much. The ISM recently snapped a 26-month losing streak. The ISM doesn’t reach the worrying level until it drops down to 43 or 44.

Interestingly, the ISM Manufacturing report also showed that imports dropped to 39.9 last month. That’s the lowest since the financial crisis.

That’s not the only negative report on the economy. Also on Monday, the Census Bureau said that construction spending pulled back in April by 0.4%. So far this year, construction spending is running 1.4% of last year’s total.

On Tuesday, the Census Bureau said that factory orders fell by 3.7% in April. That comes after a 3.4% increase for March. Economists had been expecting a drop of 3.1%. Orders for commercial aircraft dropped by 51.5%. Motor vehicles, parts and trailers fell by 0.7%.

The OECD made waves on Tuesday when it cut its estimate for U.S. economic growth this year to 1.6%, and to 1.5% for next year. As key factors for the downgrade, the OECD cited tariffs and the policy uncertainty. The group also said that it expects inflation in the U.S. to increase.

To me, these are signs that the economy is expanding but at a slow pace. I don’t think we’re close to a recession, but that could change before the end of the year.

Growth Charges Ahead and Healthcare Lags

I’ve been surprised by the outperformance of growth stocks over value stocks over the past two months. Of course, some of this is to be expected as growth stocks love to outperform in bull markets. Still, I didn’t think it would be by this much.

Since the April 8 low, the S&P 500 Value Index has gained 13.3% while the S&P 500 Growth Index is up by 26.8%. That’s a hefty lead for such a short period of time.

If we dig down a little, an interesting fact about the market in May is that every sector gained except for healthcare. In fact, healthcare has been lagging the rest of the market for the last 30 months.

In the chart below, the red line is the S&P 500 Healthcare ETF, and the blue is the S&P 500.

I notice this because healthcare has usually been a very good sector to invest in, and there have been many big winners over the years. So many trends are in its favor. You have technology and demographics working together, plus a very large amount of government support.

Stocks like Johnson & Johnson (JNJ) and AbbVie (ABBV) are going for less than 14 times forward earnings. Merck (MRK) and Pfizer (PFE) are both trading less than eight times forward earnings. Pfizer currently yields over 7.2%.

We’re fortunate to have some solid healthcare names on our Buy List. Abbott Labs (ABT) is up more than 17% this year. Stryker (SYK) has been a great stock for us for many years.

I won’t predict an imminent turnaround for healthcare, but I will note that historically, it lags the market occasionally but not for long. Healthcare crushed the market from 2011 to 2015. It had a very good year in 2022 as well. The relative strength of healthcare is at its lowest point in 25 years.

Healthcare is also a quintessential defensive stock. That means it does well when the economy is flat on its back. Healthcare’s (and Value’s) day will come, but it needs a recession first.

Costco Rallies on Earnings Beat

Last week, I highlighted Costco (COST) and talked about why I like the company so much, if not the stock. More proof came last Thursday when the retailer posted another solid earnings report.

For its fiscal Q3, Costco earned $4.28 per share. That beat Wall Street’s consensus by four cents per share, and it’s up from $3.78 per share one year ago. Quarterly revenue rose 8% to $63.21 billion. That was $20 million more than Wall Street had been expecting. (It says something about your company when a beat of $20 million is basically a rounding error.)

On the earnings call, the company conceded that tariffs have been difficult for them. Specifically, Costco had to adjust their supply chain and, in some cases, raise some prices which I know they hate to do. I can’t say how much the impact has been. Costco is one of the few retailers that does not provide earnings guidance.

Same store sales were up by 8%, and e-commerce sales were up by 16%. Costco could actually benefit from the tariff policies because consumers might be more willing to lock in long-term discounts by buying Costco memberships. Still, tariffs are an issue. About one-third of Costco’s sales in the United States are in goods from outside the country.

Costco isn’t alone in fighting higher prices. Walmart (WMT) also said it will have to pass on higher costs.

On the company’s earnings call, CEO Ron Vachris said Costco has looked for ways to reduce tariff costs while keeping prices low. He said its buyers rushed orders to get them to the U.S. ahead of tariffs. It has rerouted goods from countries with higher tariffs to non-U.S. markets. And it’s sourced more items for its private brand, Kirkland Signature, in the countries or regions where the items are sold.

Even with tariffs, he said, Costco has lowered the price of some items including eggs, butter and olive oil. He said it’s also trying to lean into reasons that customers might sign up for or renew membership, such as extending the hours of its gas stations that sell discounted fuel.

On Friday’s trading, the shares rallied a little over 3%. As I’ve said, Costco is a wonderful company that I’d love to buy, but I still think it’s simply too expensive. Costco is currently trading at more than 50 times next year’s earnings. I don’t think that’s reasonable.

That’s all for now. The May jobs report is due out on Friday. Wall Street is looking for a gain of 125,000 new new jobs. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on June 3rd, 2025 at 4:55 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.