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Market Commentary
Market Commentary – May, 2025
Calm Amid Chaos
stocks ended the month up 5.3%.
interest rates unchanged, and market expectations for rate cuts this year dropped from four to two by year end.
The S&P 500 ended May back in slightly positive territory for the year.
from small business spending, domestic manufacturing, and capital investment.
U.S. large cap stocks recorded the strongest May since 1990
Overview
U.S. large-cap stocks, as measured by the S&P 500, gained 6.3%, the strongest May return since 1990 when the index rose 9.3%. Similarly, the U.S. small-cap Russell 2000 Index ended the month up 5.3%. In contrast, U.S. intermediate-term bonds, represented by the Bloomberg U.S. Aggregate Bond Index, declined 0.7% in May.
The ISM Services PMI fell into contractionary territory in May for the first time in 11 months
Updated first-quarter GDP estimates show that the U.S. economy contracted at an annualized 0.2% quarter over quarter—a marginal improvement from the initial estimate of a 0.3% decline.1 The upward revision was driven by stronger business investment and inventory accumulation. However, consumer spending was revised down from 1.8% to 1.2%.1 An additional sign of a slowdown in economic growth, the ISM Services PMI fell into contractionary territory in May for the first time in 11 months, posting a reading of 49.9.2
FOMC meeting minutes show the Fed’s inclination to hold interest rates steady
The May jobs report showed a resilient, yet gradually moderating, labor market. The economy added 139,000 new jobs—slightly above the expected 126,000—while the unemployment rate held steady at 4.2%. However, downward revisions totaling 95,000 jobs across the previous two months tempered some of the optimism.3 Still, the slightly better-than-expected jobs report likely gave the Federal Reserve sufficient justification to keep interest rates unchanged at the next Federal Open Market Committee (FOMC) meeting. While the May 7 FOMC meeting minutes signaled the Fed’s inclination to hold rates steady, market expectations have shifted: investors now anticipate the equivalent of two 0.25% rate cuts by year end, down from four projected cuts just a month ago.4,5
The April 2 tariffs remain in effect for now
Calm Amid Chaos
CBO: Trump’s tax and spending bill could add $2.4 trillion to the federal deficit over the next 10 years
A record $23.3 billion in customs and excise taxes were collected despite declining import volumes
Computer equipment spending added a record 1% to first-quarter U.S. GDP
By the end of May, nearly all S&P 500 companies had reported first-quarter earnings. Earnings growth for the index has nearly doubled since March 31, rising from 7% year-
over-year to 13%.14 The strongest gains came from healthcare (43%), communication services (29%), and technology (16%). However, as earnings season progressed, full- year earnings growth projections declined—from 11% to 9%.14 On May 28, Nvidia reported first-quarter results, beating both revenue and earnings expectations. Revenue rose nearly 70% year over-year to $44.1 billion, despite a $2.5 billion hit from unsold H20 chips due to U.S. export restrictions on China.15 Nvidia’s share price has climbed 50% since the April 4 market low. The strength in mega-cap tech endures, with capital expenditure guidance from Amazon, Alphabet, Microsoft, and Meta pointing to a combined $330 billion in AI investment in 2025—a 35% year-over-year increase—and a projected $1 trillion over the next three years.16, 17,18,19 Notably, computer equipment spending added a record 1% to first-quarter U.S. GDP, reinforcing the view that the AI boom continues to quietly drive economic momentum.20
U.S. large-cap stocks posted their best May since 1990. Despite headline chaos from tariffs, the OBBBA, and other market and geopolitical events, this strong May helped bring year-to-date returns for the S&P 500 to a very calm +1% and just 4% below an all- time high–achieved in spite of a nearly 20% decline between February 19 and April 8. Credit spreads, which spiked to 4.3% in mid-April amid tariff concerns, fell to 3.1% by month end, continuing to signal economic resilience despite softening macro data. Betting market odds of a recession also dropped sharply—from 66% on May 2 to 34% at month-end.21 In contrast to the relative calm in equities, fixed income markets were volatile throughout the month. The 10 year Treasury yield surged to 4.6% following news of the OBBBA’s passage in the House, before retreating to end May at 4.4%.
May brought year-to-date S&P 500 returns to 1%
Markets
U.S. large-cap stocks ended May up 6.3%, and international developed large-cap stocks gained a still-respectable 4.7%. U.S. small-cap stocks marginally underperformed their international counterparts. The former gained 5.3%, and the latter ended the month up 5.7%. Emerging and frontier market stocks gained 4.3%. U.S. intermediate-term bonds ended May down 0.7%.
U.S. small-cap stocks marginally underperformed their international counterparts
U.S. intermediate-term bonds ended May down 0.7%
Calm could be shaken if the government shifts focus to spending cuts, inflation spikes, or Treasury yields jump
Looking Forward
Despite the chaotic headlines, investors seem unfazed by the uncertainty surrounding tariffs and instead appear more focused on potential long-term positives, including a resilient U.S. economy, a broadening global equity rally, and the more pro-growth aspects of this administration’s policy agenda. Earnings growth estimates for the S&P 500 in 2025, while off their highs, are over 9%, credit spreads remain contained, and the AI infrastructure boom appears durable. Although notable risks remain and volatility could increase during the second half of the year, areas like small business spending, domestic manufacturing, and capital investment could deliver welcome surprises. If the positive economic factors outweigh the negative ones, the current market calm may continue. However, this calm could be disrupted if the U.S. administration renews its focus on spending cuts, inflation increases significantly, or Treasury yields rise meaningfully—just some of the key risks we are monitoring.
Citations
1. Bureau of Economic Analysis: https://www.bea.gov/news/2025/gross-domestic-product-second-estimate-corporate-profits-preliminary-estimate-1st-quarter
2. ISM: https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/may/
3. Bureau of Labor Statistics: https://www.bls.gov/news.release/empsit.nr0.htm
4. Federal Reserve: https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20250507.pdf
5. CME: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
6. Reuters: https://www.reuters.com/world/us/us-court-blocks-trumps-liberation-day-tariffs-2025-05-28/
7. Wall Street Journal: https://www.wsj.com/politics/policy/trade-court-strikes-down-trumps-liberation-day-tariffs-9befa448
8. Reuters: https://www.reuters.com/business/us-ruling-that-trump-tariffs-are-unlawful-stirs-relief-uncertainty-2025-05-29/
9. BBC: https://www.bbc.com/news/articles/c93ywvl7yy5o
10. Thomson Reuters Tax & Accounting: https://tax.thomsonreuters.com/news/house-rules-committee-debates-one-big-beautiful-bill/
11. Politico: https://www.politico.com/news/2025/05/22/house-republicans-pass-big-beautiful-bill-after-weeks-of-division-00364691
12. Congressional Budget Office: https://www.cbo.gov/publication/61461
13. Congressional Budget Office: https://www.cbo.gov/system/files/2025-06/61389-Tariff-Effects.pdf
14. FactSet: https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_060625A.pdf
15. Nvidia: https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-first-quarter-fiscal-2026
16. CNBC: https://www.cnbc.com/2025/02/06/amazon-expects-to-spend-100-billion-on-capital-expenditures-in-2025.html
17. Reuters: https://www.reuters.com/technology/alphabet-ceo-reaffirms-planned-75-billion-capital-spending-2025-2025-04-09/
18. CNBC: https://www.cnbc.com/2025/02/24/microsoft-reiterates-plan-to-invest-80-billion-in-ai-.html
19. Reuters: https://www.reuters.com/technology/meta-invest-up-65-bln-capital-expenditure-this-year-2025-01-24/
20. Bloomberg
21. Polymarket: https://polymarket.com/event/us-recession-in-2025
22. Mining.com: https://www.mining.com/platinum-price-surges-to-highest-since-2021-as-market-tightens/
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Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any microeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.
This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.
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Definitions
Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.