Executive Summary

May 2025 marked a significant recovery for US financial markets following April’s tariff-induced turmoil. The S&P 500 delivered its strongest monthly performance in over a year, gaining 6.15% and returning to positive territory for 2025. This rebound was primarily driven by the temporary US-China trade agreement reached on May 12, which reduced tariff rates and provided much-needed clarity to global markets. Despite persistent economic uncertainties, equity markets demonstrated remarkable resilience, while fixed income markets faced pressure from rising yields amid fiscal concerns.

Equity Markets Performance

Major Index Movements

US equity indices posted exceptional gains in May 2025, with the recovery accelerating after the mid-month trade agreement. The S&P 500 surged 6.15% for the month, bringing its year-to-date return to 0.51%. The Dow Jones Industrial Average gained 3.94% in May but remained down 0.64% for the year. The Nasdaq Composite delivered the strongest performance, advancing 9.6% for the month.

The recovery was particularly notable given that May brought the S&P 500 back above the 5,900 level, officially returning the index to positive territory for 2025. Average daily volatility, as measured by the VIX, declined significantly to 20.46 in May, down 36% from April levels.

Sector Performance and Stock Movements

Technology stocks led the rally, with the sector gaining over 10% during the month. The recovery was broad-based, with most sectors participating in the upward momentum following the trade agreement announcement. Tesla jumped nearly 7% on the trade news, while Apple and Nvidia gained 6% and 5% respectively. Companies heavily reliant on Chinese goods saw significant rallies, with Best Buy rising 6%, Dell Technologies climbing almost 8%, and Amazon advancing more than 8%.

The “Magnificent 7” technology stocks continued to drive much of the market’s performance, contributing significantly to the S&P 500’s gains. Without these large-cap technology names, the S&P 500’s May total return would have been 2.72% instead of 6.29%.

Tariff Updates and Trade Policy Impact

The most significant market-moving event in May was the US-China trade agreement reached on May 12, 2025. Both countries agreed to reduce tariffs by 115%, with the US lowering tariffs from 145% to 30% and China reducing tariffs from 125% to 10%. This 90-day agreement provided temporary relief from the trade tensions that had plagued markets since April’s “Liberation Day”.

The agreement represented a historic trade win for the US, demonstrating President Trump’s negotiating approach. China committed to removing retaliatory tariffs announced since April 4, 2025, and suspending non-tariff countermeasures. However, the temporary nature of the agreement, set to expire on July 9, continues to create uncertainty for businesses and investors.

Fixed Income Markets

Treasury Yield Movements

US Treasury yields experienced significant upward pressure throughout May 2025, reflecting concerns over fiscal policy and deficit spending. The 10-year Treasury yield rose 24 basis points during the month to 4.42%. The 2-year yield increased 30 basis points, while the 30-year bond yield advanced 25 basis points.

The yield curve steepened during May, with shorter-term rates rising more dramatically than longer-term rates. By month-end, the 10-year Treasury yield had reached levels not seen since late 2023, driven by concerns over the proposed tax and spending legislation working its way through Congress.

Credit Rating and Fiscal Concerns

A significant development occurred on May 16 when Moody’s Investors Service downgraded the US credit rating from Aaa to Aa1, citing concerns over the nation’s fiscal trajectory. This downgrade, while largely expected by markets, reinforced concerns about unsustainable deficit spending and contributed to the upward pressure on yields.

The Bloomberg Treasury Bond Index fell 1.03% in May, reflecting the impact of rising yields on bond prices. Despite the challenging environment for Treasuries, demand remained supported by global uncertainty and the dollar’s safe-haven status.

Municipal and Corporate Bond Performance

Municipal bonds outperformed Treasuries in May, benefiting from strong demand and limited supply. The Bloomberg Short/Intermediate Municipal Bond Index gained 0.98% during the month. Municipal bond issuance totaled $50 billion in May, up 11% from the previous month and 6% from May 2024.

Corporate bonds showed resilience despite rising Treasury yields, with the Bloomberg Corporate Investment Grade Index seeing option-adjusted spreads tighten by 18 basis points. Total fixed-rate investment grade corporate bond issuance reached $150 billion for the month.

Commodities Market

Energy Sector Performance

The energy sector experienced significant volatility in May 2025, with crude oil prices staging a recovery from April’s sharp decline. Brent crude prices bounced back to around $65 per barrel in May, recovering from lows below $60 per barrel in April. The recovery was supported by the US-China trade agreement and increased market awareness that low oil prices could challenge US shale production.

OPEC+ continued to implement production increases as planned, adding approximately 411,000 barrels per day in May, more than initially scheduled. The energy price index fell 4.4% in May, driven by declines in US natural gas (-8.4%) and crude oil (-4.8%).

Precious Metals and Industrial Commodities

Gold continued its remarkable rally in May 2025, with prices reaching new record highs. The precious metal gained 14% during the month, extending its year-to-date gains to over 40%. The rally was driven by ongoing geopolitical tensions, currency debasement concerns, and central bank buying.

Copper markets remained volatile due to ongoing tariff uncertainty and trade policy changes. While a May agreement reduced bilateral tariffs temporarily, continued slowdown in Chinese demand counteracted tight physical markets. Base metals overall declined 3.3% in May, led by copper’s 2.6% drop.

Cryptocurrency Markets

Bitcoin and Major Cryptocurrencies

The cryptocurrency market maintained a strong upward momentum in May 2025, gaining 10.3% month-over-month despite global trade uncertainties. Bitcoin performed exceptionally well, surging 11.1% and reaching a new all-time high of $111,970 before experiencing some volatility towards the month-end.

Ethereum showed remarkable strength with a 43.9% gain in May, driven by the successful implementation of its Pectra upgrade. The upgrade improved scalability, security, and developer experience, restoring investor confidence in Ethereum’s long-term viability.

Altcoin Performance and Market Trends

Altcoins participated broadly in the May rally. Dogecoin jumped 12.9% following 21Shares’ filing for a spot DOGE ETF, which drove a 528% increase in active addresses. Solana gained 9.3%, bolstered by institutional inflows and new treasury allocations. BNB posted a 10.1% gain, drawing attention following the $2 billion launch of stable coin USD1 on BNB Chain.

The on-chain ecosystem saw strong resurgence in May, with Total Value Locked (TVL) jumping 13% from $98.7 billion to over $112 billion. This growth reflected renewed institutional interest and increased corporate adoption in the decentralized finance sector.

International Markets

China Market Performance

Chinese equity markets showed modest gains in May 2025, with the Shanghai Composite Index increasing 2.2% for the month. The CSI 300 Index demonstrated resilience despite ongoing economic challenges. However, China’s export growth slowed to 4.8% year-over-year in May, down from 8.1% in April, as US tariffs began to impact trade flows.

Factory-gate deflation deepened in May, with producer prices falling 3.3% year-over-year, the most substantial contraction in 22 months. Consumer prices continued to decline by 0.1% annually, highlighting persistent deflationary pressures in the economy.

India Market Dynamics

Indian equity markets experienced volatility in May 2025, with both the Nifty 50 and BSE Sensex facing pressure from global factors. The Nifty 50 declined 203.75 points to close at 24,609.70 on May 22, while the BSE Sensex fell 644.64 points to 80,951.99.

Despite near-term volatility, analysts remained optimistic about India’s long-term prospects, forecasting the Nifty 50 to rise 6% to 26,500 by end-2025. The market’s resilience was supported by continued foreign investment inflows and strong domestic economic fundamentals.

Outlook and Risk Assessment

The May 2025 market recovery demonstrated the power of policy clarity in driving investor sentiment. However, significant risks remain as the 90-day tariff pause approaches expiration on July 9. The temporary nature of the US-China agreement creates ongoing uncertainty for businesses making long-term investment decisions.