May 2025 Monthly Market Recap
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US Stocks: The S&P 500 rebounded sharply in May and increased 6.3%, its strongest 1-month return since November 2023. Large Cap Growth stocks led the rally, with the Nasdaq 100 and Russell 1000 Growth gaining 9.2% and 8.9%, respectively.
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Technology was the top-performing S&P 500 sector for a second consecutive month, with the Industrials and Consumer Discretionary sectors also gaining over 8%. Health Care was the only sector to trade lower, and defensive sectors were relative underperformers as the market traded higher.
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International Stocks: International equities traded higher but underperformed the S&P 500. Developed Markets gained 4.8%, while Emerging Markets returned 4.0%.
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Bonds: Bonds ended the month with a slight loss, with the U.S. Bond Aggregate posting a decline of 0.6%. Corporate bonds outperformed as credit spreads tightened, with investment-grade posting a positive 0.2% total return and high-yield returning 1.7%.
Back Near Highs, But the Road Remains Bumpy
The central story of 2Q (and all of 2025) has been trade policy uncertainty. Markets have weathered two months of policy-driven volatility, only to end up roughly where they started. After a nearly 20% decline from late February to early April, the S&P 500 has rebounded and is within 4% of its all-time high. But beneath the surface, confidence has not recovered as quickly.
What remains is weakened business and consumer confidence, rising inflation expectations, and a Federal Reserve that has paused interest rate cuts.
The threat of a full-scale trade war and global supply chain disruption may have diminished, but the full impact of recent events will likely take months to become known. The current tariff pause with most countries runs through early July, and the agreement with China expires in mid-August. A recent court challenge to the administration’s tariff authority adds another variable. As a result, markets remain sensitive to headlines and policy shifts.
Early economic data suggests the tariffs have had a limited impact on the economy, but forward-looking surveys point to a slowdown in business investment and consumer spending. Inflation expectations are ticking higher, and the Fed appears less inclined to cut rates further unless economic conditions worsen.
Looking Ahead: Have a Plan
We expect continued volatility over the summer as election dynamics, trade policy, and inflation all collide. However, despite the noise that may come from the volatility history shows us that some of the best returns come in the periods right after fear peaks.
Periods like this serve as a reminder of the importance of discipline and a plan. Remember:
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Markets move fast in both directions, highlighted by the sharp rally in May after a steep selloff in April. Those who stayed invested benefitted. Those who tried to time it likely didn’t.
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Policy noise is real but is always present. Tariffs, elections, and central bank actions dominate headlines, but fundamentals drive long-term returns. Political parties change, and with each change brings new noise. Working through the noise to develop and adhere to a long-term plan is essential to long-term wealth creation.
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Diversification still matters. Tech and growth names have led recently, but leadership can shift quickly. Owning a diversified portfolio across asset classes and markets (i.e. public and private) is your best hedge against being wrong on the next move.
At Defiant Capital Group, we’re advising clients to stay focused on what they can control: asset allocation, risk management, tax efficiency, and staying invested.
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