Markets Rebound in May as Tariff Fears Lessen and Summer Looms
There’s an old saying that the financial markets often take the elevator down and the escalator up, meaning they tend to drop fast and straight but rise more gradually. In May, we saw some good signs that the markets have stepped aboard the escalator. With summer starting and tariff fears easing, there’s also cause to think they might stay aboard for a while.
The stock market did very well in May. Just saying that sounds strange after the long, tumultuous stretch Wall Street has been through. April was especially volatile, as you’ll recall, and ended with the market down despite a strong rally in the final week. The main issue weighing on investors since February, of course, has been the president’s global tariff plan and the potential economic challenges it could create.
But as that plan has gone through various revisions and run into legal challenges, it seems investors have finally made their peace with it – or at least digested it enough to allow them to shift their focus to more concrete, and more positive, economic issues. In fact, in last month’s newsletter, I noted that the rally in late April might be a sign that this very shift was taking place.
May seemed to confirm my observation. As the month unfolded, we heard more tough talk from the president about his tariff plan for China, but this time the markets didn’t even flinch. As a result, the S&P 500 had its best monthly performance since November 2023, finishing May with a 6% gain. The tech-heavy Nasdaq surged more than 9% for the month, and the Dow Jones Industrial Average rose about 4%.1 All of this put Wall Street back in the black for the year by about 1% based on its broadest index, the S&P.
Ebb and Flow
Once again, the market’s recovery is due to investors not only shifting their focus away from tariffs but also shifting it toward more positive matters. For example, corporate earnings are still relatively strong, and inflation has been holding steady at around 2.3%, which is average. Long-term interest rates are also holding steady despite ticking up a bit in May. The rate on the 10-year government bond went from 4.2% at the start of the month to a little over 4.4% by the end, although rates are still lower than they were at the start of the year.2
Of course, despite all this, most economic indicators still suggest the US economy is slowing, as it has been for many months since its peak growth period following the COVID-19 pandemic. This is hardly surprising. It’s been five years since the pandemic devastated the global economy, and all the stimulus that brought us back has undoubtedly run its course by now. In other words, we’re back to a more “normal” economy, and a normal economy always ebbs and flows. In fact, many experts think the US economy is overdue for a major ebb, if not a recession.
The point is, since the markets are forward-looking, you can be sure investors will continue watching all these indicators closely, especially with the Federal Reserve scheduled to meet again on June 17th, and second-quarter earnings reports due to start rolling out next month.
Still, the return to a more stable, up-trending market is a welcome relief and a positive sign, especially coming at the start of the summer months when the financial markets, historically, tend to be calmer anyway.
Your Portfolios
So, what does all this mean for you? Well, in May, most of our portfolios of bonds and bond-like instruments did regain a bit of what they gave back in the volatile month of April. On average, you should see your values up about 1% year-to-date on your latest statement, depending on your individual holdings. If the markets remain optimistic overall, we should regain more growth in the coming months and get back on track toward our year-end target goal of 5-6% total return.
The good news, of course, is that regardless of whether that happens, you can continue counting on your interest and dividend return being unaffected, and on knowing that when you’re investing for income-first and growth second, any fluctuation up or down in your asset values is largely irrelevant.
Still, it always feels better to see those values going up instead of down, so the fact that the markets seem to be back on the up-escalator instead of the down-elevator is a welcome sign. No one has a crystal ball, of course, and anything can still happen, but as noted, there are reasons to believe the escalator ride might continue for a while.
As always, if you have any questions about your investments, the markets, or anything else, you can reach out to our office at any time!
Happy June!
Sources:
1 https://www.cnbc.com/2025/06/01/stock-market-today-live-updates.html
2 https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx
Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm.