Key Points:
• US stocks bounced back in May with strong gains for the major indices.
• Moody’s downgraded the US credit rating as debt levels continued to grow.
• International stocks have been a bright spot for globally diversified investors, outpacing US markets so far in 2025.
Trade policy and geopolitics have been the leading driver of market sentiment so far this year. In April, the US dropped the tariff rate on Chinese goods from 145% to 30%, while China dropped their tariffs on US goods from 125% to 10%. The negotiation between the two largest economies has been confrontational at times, but the agreement sent stocks meaningfully higher. The NASDAQ Composite gained 9.7% during the month, S&P 500 climbed 6.3% while the Dow Jones Industrial Average was up 4.2%. The S&P 500 is now positive for 2025 after dramatic swings amid the uncertainty.
Technology stocks (+10.9%) drove the market higher after a challenging start to the year. Communication Services (+9.6%) and consumer discretionary (+9.4%) moved materially higher as investors took a risk-on stance in equities. Healthcare (-5.6%) was the only sector that was negative during the month as drug and healthcare costs came under fire. Outside the US, international stocks continue to shine. Developed international and emerging market stocks gained over 4% in May and are outpacing the US market by a wide margin for the year. Fiscal stimulus in Europe may revive the stagnant economies.
Moody’s finally joined S&P and Fitch as it downgraded the US credit rating from Aaa. This pushed Treasury yields higher, as bond buyers require higher yields for lower rated debt. The Bloomberg Aggregate Bond Index dropped 0.7% in May but is still up 2.5% for the year. The downgrade wasn’t unexpected but illustrates the large and rising debt levels of the US Government. High yield was the best sector of the bond market, gaining 1.7% in May. This suggests that bond investors may feel less worried about an economic recession.
The on-again, off-again tariff talk is exhausting. One week we were looking at 50% tariffs with the European Union, the next week the US Court of International Trade said reciprocal tariffs are unconstitutional. It will likely continue to play out in the coming months and may even end up with the Supreme Court. While it is anyone’s guess how tariff negotiations will play out, markets could remain choppy on the news. Long-term investors are almost always best served, sticking with their long-term allocations dictated by their financial plans and not making investment decisions based on short-term noise.
• US stocks bounced back in May with strong gains for the major indices.
• Moody’s downgraded the US credit rating as debt levels continued to grow.
• International stocks have been a bright spot for globally diversified investors, outpacing US markets so far in 2025.
Trade policy and geopolitics have been the leading driver of market sentiment so far this year. In April, the US dropped the tariff rate on Chinese goods from 145% to 30%, while China dropped their tariffs on US goods from 125% to 10%. The negotiation between the two largest economies has been confrontational at times, but the agreement sent stocks meaningfully higher. The NASDAQ Composite gained 9.7% during the month, S&P 500 climbed 6.3% while the Dow Jones Industrial Average was up 4.2%. The S&P 500 is now positive for 2025 after dramatic swings amid the uncertainty.
Technology stocks (+10.9%) drove the market higher after a challenging start to the year. Communication Services (+9.6%) and consumer discretionary (+9.4%) moved materially higher as investors took a risk-on stance in equities. Healthcare (-5.6%) was the only sector that was negative during the month as drug and healthcare costs came under fire. Outside the US, international stocks continue to shine. Developed international and emerging market stocks gained over 4% in May and are outpacing the US market by a wide margin for the year. Fiscal stimulus in Europe may revive the stagnant economies.
Moody’s finally joined S&P and Fitch as it downgraded the US credit rating from Aaa. This pushed Treasury yields higher, as bond buyers require higher yields for lower rated debt. The Bloomberg Aggregate Bond Index dropped 0.7% in May but is still up 2.5% for the year. The downgrade wasn’t unexpected but illustrates the large and rising debt levels of the US Government. High yield was the best sector of the bond market, gaining 1.7% in May. This suggests that bond investors may feel less worried about an economic recession.
The on-again, off-again tariff talk is exhausting. One week we were looking at 50% tariffs with the European Union, the next week the US Court of International Trade said reciprocal tariffs are unconstitutional. It will likely continue to play out in the coming months and may even end up with the Supreme Court. While it is anyone’s guess how tariff negotiations will play out, markets could remain choppy on the news. Long-term investors are almost always best served, sticking with their long-term allocations dictated by their financial plans and not making investment decisions based on short-term noise.
Indices mentioned are unmanaged and cannot be invested into directly. The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S. companies listed on the Nasdaq stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks.
Sources: Morningstar Direct, Wall Street Journal, Hamilton Lane, First Trust
Sources: Morningstar Direct, Wall Street Journal, Hamilton Lane, First Trust