Market Update: May 19, 2025
Economic news last week included inflation metrics showing improvement on both a consumer and producer level. Also, data included slightly higher retail sales and housing starts, unchanged industrial production, but weaker consumer sentiment that continues a negative trend.
Equities gained globally, as U.S.-China trade negotiations lowered chances of economic slowing. Bonds were mixed, with yields higher but credit spreads tighter. Commodities were also mixed, with crude oil and industrial metals higher.
U.S. stocks earned strong returns last week, beginning with the S&P 500 rising over 3% on Monday with news from the prior weekend of substantial progress with China on a de-escalation of trade tensions. This included a suspension of earlier tariff rates for 90 days for a continuation of talks, with U.S. tariff rates on China falling from 145% down to 30% (and China-on-U.S. tariffs reduced from 125% to 10%). Cooler inflation also helped sentiment a bit, although many see those prior-month figures as being on borrowed time if/when tariff impacts creep through. Every sector ended positively last week, led by substantial gains of nearly 8% in both technology (led by Nvidia) and consumer discretionary (led by Tesla), while normally-defensive health care gained only a few tenths of a percent (completely due to weakness in UnitedHealth). Real estate also gained about a percent, despite higher yields.
The 20% gain from the near-term low on Apr. 8 has ranked as one of the stronger short-term rallies over the past few decades, only surpassed by shock recoveries during Covid (Apr. 2020), GFC conclusion (Apr. 2009), Desert Storm (Feb. 1991), Enron (Aug. 2002), and LTCM (Nov. 1998). This has naturally come along with reduced tariff-induced recession risks. So far, being bullish when markets are fearful, having reached a near-bear market -20% decline, has been again productive.
Foreign stocks also experienced a positive week, albeit to a lesser degree with some downward pressure from a stronger U.S. dollar. Europe and the U.K. outperformed Japan, while all lagged stronger results from the emerging markets, where several larger nations experienced gains. As has been the case for months, trade progress between the U.S. and key trading partners has been a global catalyst for stronger equities—as odds for a trade-related global recession decline. At the same time, European economic growth has also improved, which has helped the fundamental case.
U.S. Treasury bonds fell back slightly as interest rates ticked a bit higher across the curve, though investment-grade and high yield corporates, as well as floating rate bank loans, saw positive returns as credit spreads continued to contract in keeping with strength in equity markets. The U.S. dollar rose by nearly a percent, resulting in a mixed bag for foreign bonds, with emerging markets outperforming developed. Over the weekend, Moody’s became the last of the three major credit rating agencies to downgrade U.S. debt, from Aaa to Aa1, due to the buildup of the U.S. deficit and related likelihood of further supply issuance looking ahead. Overall, such downgrades haven’t taken away from the role of Treasuries as the world’s primary safe haven, especially relative to other alternatives, but have pointed to signs of vulnerability.
Commodities were mixed, as slight gains in energy and industrial metals offset declines in precious metals, as investors moved away from safety towards risk for the week. Crude oil rose 2% last week to $62/barrel, with prices remaining low from high production levels but some improved prospects for demand as risks of global recession fell a bit. This offset another volatile week in natural gas, which fell sharply in reaction to cooler weather forecasts.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.