Monthly Market Report – May 2025
In May, stock markets continued their recovery, experiencing significant increases. The main driver was the trade agreements announced by the Trump Administration, especially the one reached with China in mid-month. Meanwhile, bonds performed poorly (especially U.S. Treasuries), with long-term benchmarks reaching yield levels that led to increased investor nervousness.
May began with a surprising GDP figure in the United States, taking the country's growth into negative territory (-0.3% from the previous +2.4%). The figure was completely distorted by the performance of the external sector. Imports rose sharply in an effort to avoid future tariffs, which resulted in a negative external balance contribution to GDP calculation. It is expected that next quarter's figure will offset this effect.
Meanwhile, the U.S. Congress approved Donald Trump's tax reform bill. This will imply a significant tax cut, leading the U.S. Treasury to collect USD 3.8 trillion less over the next 10 years. The reform is still pending approval by the Senate.
Also in the U.S., another major highlight was the credit rating downgrade by Moody’s on U.S. public debt. The credit rating agency downgraded U.S. debt by one notch (from Aaa to Aa1). Moody’s was the last agency to maintain the highest rating for U.S. debt. The market reaction was limited, far from the sharp declines in bonds and equities seen years ago when S&P and Fitch made the same move.
The U.S. Federal Reserve (Fed) held its third meeting of 2025 in May. The institution led by Powell kept interest rates unchanged at 4.50%, as expected by the market. The Fed focused on the potential negative impact of Trump’s tariffs and their repercussions on growth and inflation. Powell explicitly stated that the Fed is in no hurry to cut rates.
All of the above led to rising yields on U.S. debt in May (falling prices). 10- and 30-year benchmarks reached maximum yields of 4.62% and 5.15%, respectively. There is a reduced global demand for long-term sovereign debt, especially from countries such as the U.S. and Japan.
Regarding equities, most indices posted significant gains. The S&P 500 rose by +6.15%, marking its best May since 1997. Indices such as the Nasdaq rebounded by +9.04%. Both indices now show positive year-to-date returns in 2025 (+0.51% and +1.56%, respectively), thus fully recovering from the sharp declines seen in March and early April.
U.S. equities remain weighed down by the “Magnificent Seven” in 2025. In addition, the performance gap in favor of European equities remains, staying around 9%.
Markets welcomed the conciliatory tone of the Trump Administration and its efforts to reach trade agreements with other countries. On the weekend of May 10–11, China and the United States met in Switzerland to advance trade negotiations. The result was better than initially expected, as all tariffs on China were extended for 90 days, automatically reduced from 145% to 30%, a factor that was widely celebrated by markets.
During the last week of May, Trump shifted to a more aggressive tone in trade policy, with the following key developments:
On Friday, May 23, Trump surprisingly announced a new 50% tariff on Europe. That same weekend, following a phone call with Ursula Von der Leyen, those tariffs were completely suspended.
On the last day of May, Trump directly accused China of not complying with the Swiss trade agreement.
Finally, a new source of uncertainty emerged late in the month regarding tariffs. The U.S. International Trade Court declared many of Trump’s tariffs illegal, including the reciprocal ones announced on “Liberation Day,” April 2.
However, the following day, the Washington Court of Appeals temporarily suspended the ruling. The Trump Administration is expected to present its defense on June 9. If the ruling is upheld, Trump still has numerous alternative tools to impose new tariffs, albeit with less flexibility.
In a separate matter, the conflict between Russia and Ukraine appears far from resolved. Recent Russian attacks violating the ceasefire have heightened geopolitical tensions. Trump accused Putin of “playing with fire” and threatened sanctions against Russia.
Did you find this Monthly Market Report – May 2025 useful? If you’re interested in staying up to date with economic analysis and market trends, we invite you to explore other recent reports on our blog:
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