In May, financial markets rebounded strongly, signaling the resilience of equities even amid continued uncertainty about fiscal policy and global trade. While many reports continued to show that the economy is strong, consumers remained pessimistic about the future. Treasury yields fluctuated throughout the month due to concerns around federal spending and debt. For long-term investors, May serves as a reminder that markets can adapt to changing conditions, even when there is significant uncertainty around economic and fiscal policy.
The S&P 500 rose by 6.2%, achieving its best month since 2023 and recovering its year-to-date losses. International equities also saw gains, with both developed and emerging markets climbing 4.7% and 4.3%, respectively. Meanwhile, the U.S. Aggregate Bond Index declined by 0.7% in May, although it is still up 2.4% for the year. U.S. Treasury yields saw fluctuations, with the 10-year Treasury yield ending the month at 4.4% from 4.17%. The U.S. dollar index continued its decline, ending May at 99.3, its lowest point in three years.
The U.S. economy showed mixed but generally positive signals in May. The Consumer Price Index (CPI) for April revealed a 2.3% year-over-year increase, the slowest rise in inflation since February 2021, indicating a moderation in price pressures. The labor market also remained robust, with the economy adding 177,000 jobs in April, keeping the unemployment rate at a low 4.2%.
Moody’s downgraded the U.S. credit rating from Aaa to Aa1 due to rising debt levels—now at 122% of GDP—mirroring past moves by Fitch in 2023 and S&P in 2011. A new tax and spending bill threatened to add $2.8 trillion to the deficit over the next decade. On the global front, trade tensions eased with tariff relief deals involving China, the U.K., and the EU, taking many of the worst-case scenarios off the table. Corporate earnings were a bright spot, with 64% of S&P 500 companies exceeding revenue expectations.
May highlighted the complex interplay between market performance and ongoing economic and policy uncertainties. Equities rallied on the back of strong earnings and easing global tensions, even as consumers remained cautious and fiscal concerns loomed. For long-term investors, the month underscored the importance of staying disciplined and diversified.