Monthly Market Insights | May 2025

U.S. Markets

Stocks were mixed as buyers emerged late in the month, thanks to solid corporate reports and unexpected trade news.

The Standard & Poor’s 500 Index declined 0.76 percent while the tech-heavy Nasdaq Composite rose 1.26 percent. The Dow Jones Industrial Average lagged, however, falling 3.17 percent.1

Everybody in the world is a long-term investor until the market goes down. Peter Lynch, legendary mutual fund manager and author of One Up on Wall Street

Spotlight on Trade

Stocks began the month with a modest rally as markets tried to anticipate the potential impact of previously announced tariffs. However, soon after the closing bell rang on April 2, investors were caught off guard by a tariff update from the White House. Global markets reacted to the news overnight.2

Largest Gain in 17 Years

After the White House announced on April 9 a 90-day pause on specific tariffs, markets pushed higher. The S&P 500 gained 9.5 percent, its largest one-day increase in 17 years. Stocks slipped the next morning, however, despite an upbeat Consumer Price Index report showing that core inflation rose at a mere 2.8 percent annual rate, the best number in more than four years.3,4

Stocks regained some momentum after several money center banks reported Q1 numbers above expectations. But investors were unsettled again following Federal Chair Powell's concerns that tariffs would likely “move us further away from our goals,” which includes keeping inflation in check.5,6

Late-Month Rally

Stocks rallied late in the month on news that the administration intended to de-escalate tariff tensions with China. Markets also liked hearing Treasury Secretary Scott Bessent state that the U.S. was close to a trade deal with India. Megacap tech stocks led the market’s advance, with several checking in with upbeat Q1 corporate reports.7

Sector Scorecard

Seven sectors of the S&P 500 Index ended the month in the red while the other four sectors posted gains.8

Energy (-13.86 percent) was under pressure throughout the month. Healthcare (-3.79 percent), Materials (-2.43 percent), and Financials (-2.11 percent) were also under pressure, while Communication Services (-1.05 percent), Real Estate (-1.31 percent), and Consumer Discretionary (-0.10 percent) were down only slightly.8

Technology (+1.69 percent) led the gainers. Consumer Staples (+0.20 percent), Utilities (+0.06 percent), and Industrials (+0.11 percent) rounded out the winning sectors.8

What Investors May Be Talking About in May

In the month ahead, three events may influence the financial markets: the Fed’s next meeting, quarterly corporate reports, and inflation data.

The Fed’s meeting ends on May 7, and the markets will be looking for any update on short-term rates. Fed Chair Powell has indicated the central bank could find itself in a dilemma between managing inflation and supporting economic growth.

The peak period for first-quarter corporate reports ends mid-May, and investors are anticipating more CEOs will provide outlooks for 2025 and into 2026.9

Finally, the markets will get an update on consumer inflation on May 13, which reflects data from April. Investors will be looking to see if tariffs had any impact on the April numbers.

World Markets

The MSCI-EAFE Index rose 4.17 percent in April, outperforming all three major US market averages for the fourth consecutive month.10

European markets were mixed. Germany picked up 1.5 percent and Spain added 1.16 percent. But the U.K., France, and Italy finished lower.11

Pacific Rim markets were also mixed, with Australia (+3.61 percent) and Korea (+3.04 percent) among the best performers. China’s Hang Seng index fell 4.33 percent.12

Indicators

Gross Domestic Product (GDP)

The economy contracted at an annualized 0.3 percent rate in Q1 2025, falling short of economists’ expectations. It marked the first decline in GDP since 2022.13

Employment

Employers added 228,000 jobs in March, higher than the 140,000 jobs economists were expecting. Unemployment edged up to 4.2 percent. Annualized wage growth rose 3.8 percent in March, cooler than February’s 4 percent rise.14

Retail Sales

Consumer spending rose 1.4 percent in March, slightly better than expectations of a 1.3 percent rise. It was the largest monthly increase in retail sales in over 2 years, driven in part by pre-tariff buying of autos and auto parts. Excluding the auto categories, sales were only up 0.5 percent.15

Industrial Production

Industrial output increased 1.3 percent in March, following a 1.5 percent gain in February.16

Housing

Housing starts fell 11.4 percent in March over the prior month, an about-face from February’s revised increase of 9.8 percent. It marked the largest drop in a year as high home prices and mortgage rates combined with tepid demand. Single-family starts fell 14.2 percent. Starts fell the most in the West region (-30.9 percent), and rose the most in the Midwest (+76.2 percent).17

Sales of existing homes unexpectedly fell 5.9 percent in March as economic uncertainty unsettled buyers. The median existing home sales price was $403,700, an all-time high for any March.18

New home sales rose 7.4 percent in March. The median new home sales price fell 1.9 percent from the prior month to $403,600 in March. There were 503,000 unsold new homes on the market in March, equal to 8.3 months of supply at the current pace of sales.19

Consumer Price Index (CPI)

Consumer prices unexpectedly fell 0.1 percent in March—the first month-over-month decline in almost five years. Year over year, prices rose 2.4 percent, less than the 2.6 percent economists expected. Core inflation, which excludes volatile food and energy prices, rose 2.8 percent year over year—its smallest increase in 4 years—and less than the 3.0 percent expected.20

Durable Goods Orders

Orders of manufactured goods designed to last three years or longer increased 9.2 percent in March, higher than expected. Commercial aircraft orders drove much of the gain, with most other areas reporting lackluster orders.21

The Fed

While the Federal Reserve did not meet in April, Fed Chair Jerome Powell gave a much-anticipated speech where he explained:22

• The labor market is in good shape and not a significant source of inflation.
• Longer-term inflation expectations are "well anchored and consistent with our 2 percent inflation goal," — despite higher expectations for inflation over the short term.
• The Fed’s policy stance is "well positioned to wait for greater clarity... (on the likely effects of trade and fiscal policy, for example) before considering any changes in monetary policy."

The FOMC’s next meeting is scheduled for May 6-7.

By the Numbers: American Baking