Monthly Review and Outlook May 2025

Here is a review of the key developments across global markets, along with our outlook for the months ahead, highlighting where we see opportunities and potential risks.

Global stock markets moved higher in May, helped by a temporary pause in trade tensions between the US and China. The two countries agreed to suspend most tariffs (extra taxes on imported goods) for 90 days, which reassured investors. 

• United States: US shares bounced back after a weaker April. Strong company earnings for the first quarter of the year and easing trade worries helped boost confidence. Technology companies led the way, followed by media and consumer-focused businesses. Healthcare companies didn’t perform as well, partly due to new government plans to reduce drug prices.
• Europe: European shares also rose. Companies in manufacturing, technology, and banking did well, while healthcare lagged behind.
• United Kingdom: UK shares gained, especially in industrial and materials companies. Inflation (the rate at which prices rise) jumped to 3.6% in April, the highest in over a year. This made investors think the Bank of England might not cut interest rates further this year.
• Japan: Japanese shares rose, especially among large companies. Many firms announced cautious profit forecasts but increased payouts to shareholders through dividends and share buybacks (ways of returning money to investors).
• Emerging Markets: Shares in developing countries also rose, helped by the US-China trade truce. However, they didn’t rise as much as shares in more developed countries.

May was a bumpy month for bond markets. Investors shifted their focus from trade issues to concerns about the US government’s growing debt. Monthly Review and Outlook Classification:

• US bonds: Yields (the interest investors earn) on US government bonds rose. This happened because a new spending plan raised concerns about how much debt the US is taking on. Credit rating agency Moody’s downgraded the US government’s credit score slightly, which added to the worries.
• UK bonds: Yields on UK government bonds also rose, reflecting concerns about the country’s financial outlook and fewer expected interest rate cuts.
• European bonds: Government bonds in Europe were more stable, with only small increases in yields.
• US company bonds: Performed better than European ones, especially those from companies with lower credit ratings (known as “high yield” or “junk bonds”), which tend to do well when investors are feeling optimistic.

The overall index tracking commodity prices rose slightly in May. However, gold prices fell as investors felt less need for “safe haven” assets, which are typically used during uncertain times.

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.