MarketWatch for May 2025
Global markets found their footing in May, with easing trade tensions and solid corporate earnings helping to lift investor sentiment. While concerns around government debt and inflation remain, most major equity markets posted gains, and risk assets continued to recover from April’s volatility.
Source: FactSet, 9 June 2025. Figures are monthly price returns in local currencies for May 2025.
May brought a welcome pause in trade tensions, as the US and China agreed to suspend most tariffs for 90 days. This helped calm markets and supported a broad-based rally in global shares. At the same time, concerns about the sustainability of US government debt came into sharper focus, leading to volatility in bond markets.
United States
US shares rebounded strongly in May, recovering from April’s weakness. Investors were encouraged by robust first-quarter earnings and the temporary easing of trade tensions. Technology stocks led the way, with communication services and consumer-focused companies also performing well. Healthcare shares lagged behind, following President Trump’s announcement of reforms to drug pricing.
However, bond markets were unsettled. A new US spending bill raised concerns about rising debt levels, prompting a downgrade of the country’s credit rating by Moody’s. Yields on US government bonds rose as prices fell as investors demanded higher returns to compensate for the increased risk.
Europe and the UK
European shares also moved higher, with industrials, technology, and financials among the top-performing sectors. Healthcare stocks underperformed. In the UK, the broader domestic market gained ground, supported by strength in industrial and basic materials companies. Inflation rose to 3.6% in April – the highest in over a year – which led investors to scale back expectations for further interest rate cuts.
UK government bond yields rose as prices fell in response to the inflation data and concerns about the country’s fiscal outlook. In contrast, European bond markets were more stable, with only modest increases in yields.
Asia and Emerging Markets
Japanese shares advanced, driven by strong performance from large companies. Many firms announced cautious earnings forecasts but increased shareholder returns through dividends and share buybacks.
Emerging markets also posted gains, supported by the US-China tariff truce. However, they underperformed developed markets overall. Within Asia (excluding Japan), Taiwan, Indonesia, and Hong Kong led the way, while Malaysia and Thailand lagged behind.
Commodities
The S&P GSCI Index, which tracks a broad range of commodities, rose slightly in May. Gold prices fell as investors became less focused on defensive assets.
Looking ahead
Since the tariffs announced on “liberation day” many of the highest tariffs announced have been paused or reduced. Assuming the current pause on tariffs becomes permanent, the impact on the global economy should be more manageable, as such we continue to forecast solid global growth this year. In addition, we have a more positive outlook for the Eurozone where the economic recovery has started gathering momentum, driven by looser monetary policy and the potential for fiscal stimulus.
With the risk of recession reduced following the announcement of the 90-day pause on reciprocal tariffs We remain positive on global equities, although we favour certain regions and sectors, like Europe and Emerging Markets on the scope for stimulus as well as the US Financial sector. We are more cautious on government bonds, due to uncertainty around the speed and timing of future interest rate reductions. Corporate bonds now offer better value, especially in the US, where recession fears may be overdone. Gold continues to play a useful role in portfolios as a hedge against inflation and geopolitical risks, particularly with strong demand from China and the potential for lower interest rates.
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