April brought renewed market swings as tariffs and tumbling oil prices rattled investors. While energy lagged, tech and international stocks helped offset broader weakness, with gold gaining on safe-haven demand.
May wasn’t all roses, but it did provide some fresh air and welcome relief for investors in stock markets around the world. The S&P 500 index climbed 6.29% for the month, pushing the index into positive territory for the year.
Markets have continued to experience choppiness, driven largely by mixed signals on tariffs that have tested investors’ risk tolerance. However, the early-month announcement of a pause on tariffs with China was met with optimism and helped lift market sentiment.
Technology, Communication, and Consumer Sectors Lead the Charge
A strong rebound in the Information Technology sector led the way, posting a 10.89% gain for the month. Communication Services and Consumer Discretionary were close behind, with returns of 9.63% and 9.44%, respectively. Strong earnings from companies like Microsoft, Meta, and Nvidia were key drivers behind the surge.
Mid- and Small-Cap Stocks Show Promise but Remain in the Red
Mid-cap and small-cap companies also participated in the rally, with the S&P 400 and S&P 600 indexes returning 5.40% and 5.23% in May. Despite those solid monthly gains, both indexes remain in negative territory for the year. A decline in interest rates would be helpful for these segments and could support a broader recovery.
International Markets Continue to Outpace U.S. Stocks
Outside the U.S., international markets followed suit. The S&P Developed ex-U.S. BMI returned 5.09%, while the S&P Emerging BMI posted a 5.39% gain. Year-to-date, the S&P Developed ex-U.S. BMI has returned 16.48%, widening the gap between international and U.S. market performance. Europe has shown strength, fueled in part by shifts in government spending in response to ongoing tensions with the United States.
Bond Market Struggles as Fed Holds Steady on Rates
The bond market, however, did not share in the month’s optimism. The S&P U.S. Aggregate Bond Index declined by 0.78%. Although inflation is cooling and unemployment remains low, the Federal Reserve has indicated there is no immediate plan to reduce short-term interest rates.
Concerns about the size and growth of the national debt, combined with reduced demand from buyers, pushed long-term interest rates higher. A downgrade in the U.S. credit rating also contributed to a more cautious outlook among bond investors.
Precious Metals Cool Off Slightly but Remain Top Performer
Higher rates also had an effect on precious metals. The S&P GSCI Precious Metals Index declined slightly by 0.50% for the month. Even so, precious metals have been one of the year’s strongest asset classes, with the index up 23.31% year-to-date. Demand remains strong and is likely to grow further as governments continue to take on more debt to support their economies.
Looking Ahead: Volatility Remains a Key Risk
While May marked the best performance for U.S. stocks during this month since 1990, several headwinds remain. Tariffs are still in place with the possibility of increases ahead, a significant tax bill is making its way through Congress, and the debt ceiling deadline is approaching. These factors suggest that market volatility may continue in the months to come.
Investment commentary by Jason Flores, CFA, CAIA – Executive Vice President & Chief Investment Officer and video by George “Chip” Snyder, CRPC® – Vice President & Portfolio Manager at Central Trust Company.
At Central Trust Company, we continue to reassess the rapidly changing investment landscape for both risks and opportunities. If you would like to access our full monthly outlook and additional investment commentary, visit our Investments Learning Center. As always, if you have questions or concerns, please contact your Central Trust Company team. We are always ready to help.
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