Quick summary: U.S. equities were higher in May. The S&P 500 and Nasdaq posted their best month since November of 2023. This month’s de-escalation of tariffs between the U.S. and China was the big upside catalyst. Large capitalization technology companies were the standout, notably TSLA which was up +22.8% and NVDA +24.1%. Industry outperformers included semiconductors, travel and leisure, autos, apparel, software, engineering and construction, machinery, investment banks, money center banks, and GSEs. Underperformers included managed care, pharmaceuticals, China technology, homebuilders, oil majors, food and beverage, and telecommunications.
Treasuries were sharply weaker across the yield curve during the month of May, as the policy-sensitive 2-year yield was up over 30 basis points, and the 10- and 30-year yields were up around 25 basis points. The dollar index was down 0.1%. Gold was down 0.1%, the first decline in five months. Bitcoin futures were up 11%. WTI crude was up 4.4%.
Tariff news dominated the equity markets. Stocks had the best month in a year-and-a-half with the U.S. and China’s agreement to a de-escalation of tariffs being the big upside catalyst. The U.S. agreed to a 90-day cut of tariffs on Chinese goods from 145% to 30%, while China cut its tariff on U.S. goods to 10% from 125%. The U.S., earlier this month came to an agreement with the U.K. to cut tariffs, while the White House has repeatedly said it is close to deals with partners including Japan, South Korea, and India. However, reports have noted challenges to the Trump administration’s goal of striking dozens of deals before the July 9th deadline when reciprocal tariffs are scheduled to kick back in. Trump also announced he would implement a 50% tariff on the EU as of June 1st, though later extended the deadline to July 9th. However, talks with the EU face a number of challenges, including U.S. demands that the EU make unilateral tariff cuts, and the EU’s hesitation in addressing non-tariff barriers including VAT and food safety rules.
Despite the reprieve, trade headline volatility remains the key market overhang. The U.S. Court of International Trade blocked some of Trump’s tariffs on May 28th. However, a federal appeals court temporarily reinstated the tariffs as it considers the White House appeal, while the case may be taken up by the U.S. Supreme Court. However, the White House is reportedly considering alternative tariff powers it could employ, including a temporary 15% tariff for 150 days, followed by a potentially lengthy notification and comment process. Treasury Secretary Bessent also said that talks between the U.S. and China are “a bit stalled,” and may need to be revived through call between Trump and China’s Xi.
Other pieces of the bullish narrative. Corporate margins have been holding up despite tariff-driven pressures, AI tailwinds have resumed following strong Nvidia results and Middle East deals, and consumer strength continues. There was also some improvement in “soft” economic data following the U.S./China de-escalation. May Consumer Confidence jumped by the most in four years, Michigan Consumer Sentiment stabilized after four-straight declines, and the S&P Global U.S. Composite PMI accelerated after falling to a 19-month low in April.
The bearish narrative seemed to be primarily driven by the backup in Treasury yields. The 10-year yield jumped above 4.50% for the first time since February, while the 30-year yield jumped above 5.15%, the highest since October of 2023. The upward pressure was thought to center at least partially on concerns around the budget and deficits amid reconciliation negotiations. The estimated cost of the House reconciliation bill was pushed to nearly $4 trillion, while there has been a growing focus on an expected lackluster growth tailwind from the bill. Other factors that played into the backup in yields included ongoing inflation concerns and a cautious Fed. Markets are now pricing in under 50 basis points of cuts through year-end, down from ~85 bp of cuts at the start of the month. U.S. Treasury yields were also impacted by upward pressure in global bond yields, notably Japanese government bonds.
First quarter 2025 earnings season is now essentially complete. S&P 500 companies reported 12.9% earnings growth, the second-straight quarter of double-digit earnings growth, and better than the 7.2% expected at the end of the quarter.
Globalt’s portfolio positioning remains conservative. We are underweight global equities and diversified among market capitalizations and styles, neutral fixed income duration, overweight cash, and have a significant position in gold. Diversification is an important tool in combatting volatility and downside risk and we emphasize its importance given market volatility. We believe this leaves us able to adjust to the markets as they develop.
We continue to emphasize higher quality stocks with leadership or niche positioning where long-term prospects remain relatively attractive and we have confidence in the fundamental outlook.
Source: FactSet StreetAccount Summary – US Monthly Recap – May 30, 2025
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