Market Recap: May 2025

Market commentary

• Economic data reflected ongoing volatility, as durable goods orders tumbled 6.3% in April and nondefense capital goods orders, a key indicator of business investment, declined 1.3%.
• Consumer confidence rose to 98.0, while the Expectations Index jumped 17.4 points to 72.8 — remaining below the 80 mark that often signals a looming recession.
• The labor market remained a bright spot, with initial claims rising slightly to 240,000. Yet, uncertainty loomed over potential government layoffs and their possible ripple effects on the broader economy.

Select economic and market data

Equities

• U.S. stocks staged a strong comeback in May, with the S&P 500 posting its best performance since 1990 and its strongest monthly gain since November 2023.
• Positive sentiment was fueled by strong Q1 earnings — particularly in the tech sector — and easing trade tensions.

Fixed income

• Rising bond yields were fueled by a downgrade of U.S. Treasury debt, uncertainty over the proposed tax cut legislation, and tepid demand in the 20-year bond auction.
• While most bond indices declined in May, high yield bonds followed the surge of the equity market, producing strong returns.

Strategic outlook

• Some caution is warranted on equities in the near term, particularly in large-cap stocks with above-average valuations; currently favoring small-cap and mid-cap domestic stocks longer-term.
• Near-average expected returns projected for fixed income with the Fed on pause and rates reflective of conditions.
• Above-average volatility is likely given central bank involvement and geopolitical uncertainty.