May 2025 - Market Update

Data Dashboard

Stock Market

The S&P 500 advanced 6.3% in May, led by Mega-cap tech stocks. Breadth was strong—small- and mid-cap equities returned ~5.4% each for the month, and the equal-weight S&P 500 rose just 4.31%. Developed International & Emerging Markets equities advanced 4.7% and 4.3% respectively. Nasdaq was the best performing broad index, returning almost 10% on the month.

The Q1 2025 earnings season showed us that earnings for S&P 500 companies grew more than 12% YoY and sales expanded 4.4%. Mag-7 stock earnings grew around twice as much as those in the rest of the S&P 500. Nvidia's earnings release was a widely anticipated event, as it has been a leading indicator of AI investments. Shares are now up over 43% from the April-4 lows, and turned back positive on the year.

Unsurprisingly, Technology was the best performing sector, followed by Utilities, returning 7.8% and 4.2% respectively.

Although Healthcare earnings jumped by 44% in Q1 2025, there is widespread uncertainty to large-cap pharmaceutical companies, with volatile tariff policies, government announcements on drug prices, and a persistent risk of patent cliffs. Healthcare was the only negative sector, dropping 5.57% in May.

Both gold & the U.S. dollar remained flat for the month.

May Monthly Returns (by Sector)

Bond Market

The U.S. aggregate bond index dropped -0.71% in May, while International bonds stayed relatively unchanged. Short-duration bonds continued to see inflows, though long-dated yields rose modestly on concerns about fiscal discipline and Fed independence. High-yield spreads came down significantly, ending May at a modest 3.15%.

The breakeven inflation rate on 5-year TIPS rose slightly to 2.39%, as headline CPI for April came in cooler than expected for the second consecutive month. Markets have been on edge lately as investors try to make sense of mixed economic signals, shifting rate expectations, and global uncertainty. U.S. bonds have seen higher-than-usual volatility, partly due to growing concerns about the long-term strength of the U.S. dollar. With inflation still lingering and questions around U.S. fiscal policy, many are rethinking where to find safety.

Gold has made a strong comeback—up 23.75% this year—as investors look for reliable stores of value.

Economics

Inflation for consumers showed signs of easing in April. Headline CPI came in below expectations at 2.3%, the lowest it has been since Feb'21. Wholesale pricing, which is measured by the Producer Price Index (PPI), which is a leading indicator of economic activity, decreased in April, falling to 2.4% from the previous reading of 2.5%.

The labor market remained resilient, with 177,000 jobs added, below April’s gain but still much higher than expectations. The unemployment rate held steady at 4.2%. Mortgage rates remained elevated but stable, with the 30-year fixed rate averaging 6.94% nationally. New home sales came in surprisingly higher than expected, but housing starts rose only 1.6% MoM, as opposed to the surveyed expectation of 3%.

As anticipated, the Federal Reserve maintained its key overnight lending rate at 4.25% to 4.50% during its May meeting. The central bank adopted a cautious stance in light of recent economic data that revealed mixed signals of both resilience and vulnerability. It also dismissed the possibility of preemptive rate cuts in response to tariff concerns. Chair Jerome Powell underscored the Fed’s commitment to a “wait and see” strategy.

Consumer sentiment from the University of Michigan remained at one of the lowest levels ever recorded in May. Trade uncertainty seems to be the main factor behind it.

The VIX index declined further to 19.72, indicating a return to more normalized levels of market volatility—but geopolitical and monetary risks remain in sharp focus.

May Economic Dashboard

Tactical Trades

We reduced our exposure to Europe in favor of Mexico within our tactical ETF portfolio and also introduced URA (Uranium). In our tactical low-volatility portfolio, we decreased duration exposure and added credit through convertible securities. Our tactical stock portfolio remains equally weighted across the 11 GICS sectors, consistent with our long-term view favoring sector and position equal-weighted allocation.

General Client Considerations

2025 IRS annual contribution limits for 401(k), 403(b), most 457 plans and Thrift Savings Plans (TSP) increased from $23,000 to $23,500. Changing your elections at the beginning of the year can help spread out contributions evenly, and ultimately maximize your tax advantaged retirement savings. If you are participating in a company sponsored retirement plan and maxing out your contribution, please reach out to your HR department to ensure your contribution amount has been updated to reflect the new maximums.

Additionally, if you are 50 or older, the catchup contribution limit for 401(k), 403(b) and TSPs has remained the same at $7,500. If you are born in 1975 or earlier, you can contribute up to $31,000 to these accounts in 2025. You do not have to wait until your 50th birthday to make catchup contributions - the contributions can start on January 1st of the year you turn 50.

Starting 2025, if you are aged between 60-63, you can contribute up to a total of $34,750 (eligible for a higher catch-up contribution due to SECURE 2.0).

For more information, check out our newsletter on 2025 Retirement Account Limits.

As always, reach out with any questions or concerns.

Thanks,

The Friedenthal Financial Team

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