Highlights
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Inflation continues to moderate
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Stocks had one of their best months since November of 2023
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The S&P is now up for 2025 and back near all-time highs
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Fixed income returns were impacted by rising rates
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Economic Update
The US inflation rate continues to moderate with the April Consumer Price Index (CPI) falling to 2.31%. This was the lowest reading for the headline number since prior to the post-Covid spike that began in 2021. The Core Inflation Rate that strips out the more volatile food and energy prices also continues to trend in the right direction, coming in at 2.78%, which was roughly unchanged from the previous month.
Stocks and Bonds
The S&P 500 rebounded by 6.3% in May, its best monthly gain since November 2023, putting the index back into positive territory for 2025. The Nasdaq Composite rallied 9.6%, led by significant gains in technology and semiconductor stocks. The Dow Jones Industrial Average was the relative laggard in May but still managed a respectable 4.2% gain.
Small- and mid-cap stocks were up over 5% during the month but continue to lag significantly over the past year.
Global equities, as measured by the MSCI EAFE and Emerging Markets, posted returns of 4.6% and 4.3%, respectively. After several years of lagging their U.S.-based counterparts, foreign stocks have led the way so far in 2025.
Ten of the eleven market sectors were up for the month with Technology stocks leading the way (+10%). Industrial (+8.8%) and Consumer Discretionary (+8.4%) stocks also saw strong returns. The Health Care sector was the only laggard, slipping 5.6%.
Over the past 12 months only three sectors are down, Materials (-3.9%), Health Care (-6.2%) and Energy (-9.7%).
Except for Apple, all the “Magnificent 7” stocks were up during the month of May.
The bond market saw yields jump in May as apprehension over budget deficits and debt levels came to the fore. Yields were up on all US Treasury instruments between 1 and 30 years by 0.24% to 0.29%. The 20- and 30-year Treasury bonds both surpassed the psychologically significant 5% level, but finished the month off the highs.
Fixed income returns were flat to down for the month but remain in positive territory over the past year.
Final Thoughts
Despite the uncertainty introduced by ongoing uncertainty, the market has now recovered all the losses from the April sell-off and remains less than 3% from the all-time high. May’s rally was fueled in part by easing trade tensions following the agreement by the United States and China to temporarily lower trade barriers. First quarter earnings reports were also encouraging with overall S&P 500 earnings up 12.9% year-over-year, marking the second consecutive quarter of double-digit growth.
With ongoing trade negotiations, the budget reconciliation bill that is now working its way through the Senate, and the Fed continuing to contemplate rate cuts, there should be no shortage of headlines to drive day-to-day market fluctuations in the coming weeks and months. As we reminded clients in the April update, continue to ride out the short-term fluctuations and focus on the long-run.
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