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  • Writer: Investment Research Partners
    Investment Research Partners
  • Jun 5
  • 5 min read

Executive Summary

  • After the volatility experienced in April, May provided a much-needed breather for investors as equity markets rebounded broadly.

  • Despite continuing uncertainty on global trade and the US deficit, the S&P 500 index erased losses from earlier in the year to end May slightly positive for the year.

  • A wide range of potential outcomes remain possible; however, as trade negotiations continue during the tariff pauses, the US Senate works on the tax bill, and geopolitical tensions remain high.

May Flowers

The S&P 500 index broke a three-month losing streak in May, advancing nearly 6% during the month (see below).[1]  After being down nearly 15% in early April, the May rally brought the index positive year-to-date.  US technology stocks led the comeback, as the Nasdaq Composite index was up over 9% for the month and is now close to flat year-to-date (it was down over 20% during early April).[2]

The pauses in tariffs, both the reciprocal tariffs first announced in April and the tariffs on China that escalated significantly in the aftermath, seemed to calm markets during the month.  It is also possible that investors are becoming somewhat desensitized to the headlines, understanding that President Trump prefers to negotiate in public forums. Encouragingly, balanced portfolios that include assets such as foreign stocks, dividend stocks, and bonds have performed relatively well through the volatility, displaying the benefits of diversification following multiple years of outperformance by large US technology companies.

 

Despite the rebound in equity markets, uncertainty remains on several fronts, and volatility may reemerge in the months to come.  For example, we will be tracking developments in the following geopolitical stories throughout June and beyond:

 

  • Lawsuits challenging President Trump’s use of the International Emergency Economic Powers Act to levy broad global tariffs against other nations.[3] 

  • Trade negotiations with other nations that are occurring during tariff pause periods.  Progress with China, in particular, appears to have stalled recently, as President Trump accused China of violating its agreement with the US on rare earth minerals.[4]

  • Potential for escalation of global conflicts. More specifically, Ukraine recently conducted drone strikes deep within Russian territory, hitting air force bases and critical weaponry.[5]

  • The US tax bill and the deficit. The Senate is currently deliberating the comprehensive tax package dubbed the “Big, Beautiful Bill,” which passed the House in April. While the bill may help reduce income taxes on many families and businesses, it does not seem to address the large budget deficits that have been a pattern in the US since the early 2000s (see image below).

Economic Update

Despite the geopolitical uncertainty discussed above, economic data continues to point to relative stability in the US economy.  Unemployment remains relatively low, and inflation is just slightly above the Federal Reserve’s 2% target. 

 

It also appears that the economic contraction that occurred in the first quarter, largely driven by larger-than-normal imports in the run-up to Liberation Day, may prove to be an anomaly that reverses in the second quarter.

 

First quarter corporate earnings were unique in that many companies reported solid results but struck a cautious tone in their guidance for the rest of 2025. 78% of S&P 500 companies outperformed Wall Street expectations and grew earnings by 13% year-over-year, on average.  Wall Street analysts have been increasingly revising their expectations for 2025 S&P 500 earnings lower, a trend that accelerated leading into the announcement of tariff policy in April. S&P 500 earnings are still expected to be roughly 9% higher than 2024, but that earnings growth continues to be primarily concentrated in the “Magnificent Seven” stocks (Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia, and Tesla).[6] Investors will be watching for an acceleration in economic growth or productivity growth (potentially driven by advancements in artificial intelligence) for the “other 493” companies to power higher.

 

 

Treasury Markets and Fiscal Signals: Yields, Issuance, and the Dollar

The Treasury market has had a turbulent spring. In May, Moody’s downgraded US sovereign credit from Aaa to Aa1, citing a rising debt burden and the importance of long-standing checks and balances in the government. This rating change aligns with S&P’s 2011 and Fitch’s 2023 downgrades. Moody’s joins investors who have voiced concerns over fiscal policy, rising debt levels, and geopolitical tensions, which may be contributing to the rise in long-term yields, with the 30-year US Treasury hovering around 5%.[7]

 

Complicating matters, the US dollar has weakened year-to-date despite rising long-term yields. While some of this reflects relative strength in the Euro and Yen, the dollar’s weakness amid higher rates could signal fading foreign investor confidence in US fiscal management.

 

In short, while Treasury demand remains robust, the intersection of higher debt issuance, rising long-term yields, and political uncertainty will remain key variables for asset allocators and policymakers through the second half of the year.


The Path Forward

Thus far, 2025 has served as a reminder that having a long-term and diversified focus when investing remains a prudent strategy, and that attempts to “time the market” by going to cash during periods of elevated volatility and ominous headlines often lead to suboptimal outcomes. In the long run, economies grow, innovation surprises, and companies return profits to shareholders.

 

In the near term, negative sentiment and uncertainty remain significantly elevated despite the markets’ swift rebound in April and May. We anticipate volatility may reemerge as several key geopolitical and trade developments will drive headlines through the summer. As a result, our Dashboard dials remain unchanged from last month, and we continue to recommend a diversified and value-oriented investment approach.

 

We appreciate your continued trust and welcome the opportunity to speak with you in greater detail in the context of your specific situation. 


[1] S&P DJI Daily Dashboard - Monday, June 2

[2] YCharts

[6] FactSet as of May 30, 20245

[7] Bloomberg as of May 30, 2025


Important Information

All investments contain risk and may lose value.  Past performance is not an indication of future performance.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate.  There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all clients and each client should evaluate their ability to invest for the long term, especially during periods of downturn in the market.  Outlook and strategies are subject to change without notice.



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