Market review – May 2025

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Key Takeaways

• Stockmarkets performed strongly in May thanks to positive economic data and easing US-China trade tensions.
• US stocks saw strong growth, while European, Japanese, and emerging market stocks also did well.
• Developed market government bonds struggled due to concerns over US fiscal policies and credit rating downgrades.
• Corporate and emerging market bonds outperformed government bonds.
• Currency markets were stable, with slight movements in the Japanese yen and British pound.
• Oil prices rose a little in May following a sharp decline in April.

May was an excellent month for stockmarkets generally, with investor sentiment buoyed by better-than-expected economic data and an easing of trade tensions between the US and China. However, developed market government bonds struggled, weighed down by mounting concerns over the US government’s financial situation.

A major catalyst for equity markets was the temporary de-escalation of trade tensions between the US and China, as both countries agreed to reduce tariffs significantly for 90 days. 

In the US, the S&P 500 Index posted its strongest monthly performance in 18 months, driven by a combination of resilient labour market data, a lower-than-expected inflation print, and a surprise reduction in US tariffs on Chinese imports. European, Japanese and emerging market equities (company shares) also performed well.

In contrast to equities, developed market sovereign bonds faced headwinds in May. US Treasury bond yields rose, as the House of Representatives passed a tax-cutting bill that is expected to widen the federal deficit, prompting fears of increased government borrowing. (Bond prices and yields move in opposite directions.) These concerns were compounded after Moody’s downgraded the US government’s credit rating. 

UK government bond (gilt) yields also rose, while upward pressure on European sovereign bond yields was less significant. Corporate bonds and emerging market bonds outperformed developed market sovereign bonds. In the UK, the Bank of England cut its base rate by 25 basis points to 4.25%.

It was a relatively quiet month for currency markets. The Japanese yen was the weakest among G10 currencies, while sterling posted modest gains versus the US dollar. In commodities, the oil price rose marginally, following its steep fall in April.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.

The views expressed in this article should not be taken as a recommendation, advice or forecast.