U.S. equity markets notched further gains in last week’s holiday shortened trading despite continued volatility in trade headlines including a key judicial ruling on President Trump’s tariff authority, which sparked sharp market swings. The positive notes for the week were headlined by an in-line inflation report and strong earnings results for chip giant Nvidia that bolstered investor optimism about a continued ramp in AI investment. The tech heavy Nasdaq Composite led the week with a gain of 2.0%, while the S&P 500 and Dow Jones Industrial Average were up 1.9% and 1.7%, respectively. These gains wrapped up a strong rebound for the month of May in which the S&P 500 surged 6.3%, the best monthly performance since last November. International equities also added to their strong year-to-date gains in May as the MSCI All Country World ex-U.S. index logged a 4.4% return.

On Wednesday, a significant trade development came from the U.S. Court of International Trade, which ruled that President Donald Trump exceeded his authority by imposing broad tariffs on Liberation Day under the International Emergency Economic Powers Act (IEEPA). The court ordered these tariffs to be vacated, citing overreach of executive power. However, a federal appeals court temporarily reinstated the tariffs pending further review. This legal whiplash has intensified policy uncertainty at a time when global trade relations are already strained.

The volatile trade news continued into the weekend with a further escalation in global trade tensions. President Trump pledged to double tariffs on imported steel and aluminum to 50%, while both U.S. and Chinese officials accused each other of violating the temporary trade agreement reached earlier in May. Markets are likely to remain turbulent in early trading this week as investors await further clarity, including a potential call between Trump and Chinese President Xi that could help defuse tensions.

While tariff headlines remain turbulent, the economic data has yet to show much impact of the recent import duty tax hikes outside of surveys on consumer and business sentiment. Last week’s release of the April Personal Consumption Expenditures (PCE) report delivered another reassuring update on inflation. Headline PCE inflation rose just 0.12% month-over-month, while core PCE (excluding food and energy) increased 0.14%. On a year-over-year basis, core PCE inflation, which is the Fed’s preferred inflation gauge, edged lower to 2.5% in April from 2.7% the prior month. These figures support the view that inflationary pressures were subsiding ahead of tariff price increases, but the true test will be the inflation reports over the next few months.

On the employment front, the labor market showed signs of softening last week. Initial jobless claims rose to 240,000 for the week ending May 24, marking a four-week high and suggesting that some slack may be emerging in the labor market. While one week of data does not make a trend, the uptick follows a broader pattern of moderation in hiring over the past month.

With that backdrop, this week’s employment reports will be front and center for market participants, especially Friday’s release of May job numbers. Consensus forecasts call for a gain of roughly 130k nonfarm payrolls in May, down slightly from April’s pace of 177k net new jobs. Investors will be closely watching for any signs of slowing job creation, changes in labor force participation, and wage growth trends. Other data on the docket includes ISM manufacturing and services readings, factory orders, and revised first-quarter productivity figures. Each of these releases will help inform the broader narrative on whether the U.S. economy is weathering trade headwinds or beginning to falter under their weight.

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